At Elite Law Solicitors, our expert lease extension solicitors are able to deal with the entire lease extension process from start to finish.
If you own a leasehold property, it is important to consider a timely renewal of your lease for your property to retain its value. A property with a long lease is more attractive to buyers should you be thinking of selling, easier to mortgage or re-mortgage, and allows you to avoid ground rent charges.
Understanding how and when to extend your lease can be difficult. If you are thinking about seeking a lease extension it is important to get in touch with experienced lease extensions solicitors to discuss your options and what to expect from the process before taking any action.
Our commitment to an exceptional level of client service and competitive fixed fee rates have helped us cultivate a reputation as reliable and cost-effective lease extension solicitors.
In addition to office meetings, we offer remote meetings via telephone or video conferencing software and can assist you wherever you are based.
The overarching aim of a lease extension is to add additional years onto the lease, forming a continued legal agreement that allows you to remain in ownership for an extended period beyond the initially defined time in the lease.
To understand lease extensions, it is important to know why you might need one as a property owner. If you have purchased a property in England or Wales as a leaseholder, you are given a set amount of time of ownership over centuries, decades, or years. Once your lease is up, that property is then returned to the freeholder, as they have unlimited ownership of the land, property and the airspace above that land.
There are several circumstances in which you would choose to seek a lease extension. Firstly, if you own a property that will soon reach the end of the defined lease period, and you would like to avoid returning the land to the freeholder, you can choose to seek a lease extension. Secondly, you can choose to begin the lease extension process when you are nearing 80 years remaining to reduce potential costs and fees.
A lease extension is different from a lease renewal in that the end of the lease does not need to be reached to form a new agreement between the lessee and lessor. It is strongly recommended that lease extensions are carried out far in advance of a lease ending. As mentioned above, you should arrange a lease extension before the lease hits the eighty-year mark wherever possible.
Reforms for leaseholders in 2021
In January of 2021, the UK Government announced planned reforms for leaseholders, making the lease extension process easier and defining fair practices for the processes involved. While these changes are not yet law, understanding the upcoming adjustments can help you prepare for your lease extension.
Under this new proposal, leaseholders will be able to extend their lease up to 990 years with no ground rent charges. This reduces the risk of significant ground rent payments for property owners, which can be a substantial cost in addition to mortgage payments.
The long-term plan set out by the Ministry of Housing, Communities & Local Government is to reform the leasehold system entirely to make it fairer for property owners across the UK. For more information and guidance on these upcoming reforms and how they may affect you, you should seek advice from appropriately experienced lease extension solicitors.
When can you request a lease extension?
You can request a lease extension at any time while you own your leasehold property, provided you meet certain minimum criteria: you have held the lease for more than 2 years, the lease has been granted for more than 21 years, and your property is not subject to any special conditions (such as if it is owned by the National Trust or the Crown).
We would highly recommend extending your lease while it still has at least 80 years left on it. If your lease is valid for less time than this, the property becomes significantly less attractive to buyers and lenders and subsequently it becomes more difficult and more expensive to extend your lease.
There are two routes to securing a lease extension: voluntary and statutory. If you have an agreement with the freeholder, you can come to a voluntary agreement to extend your lease. If not, the statutory process involves serving the freeholder with a Section 42 notice setting out your intention to extend. Your landlord can then respond with their own terms and following a period of negotiation you can come to a mutually agreeable deal.
Lease extensions can vary greatly in cost. If you have more than 80 years left on your lease, you will pay a fee agreed between yourself and your landlord during your negotiations. If you cannot agree on a price or one party feels the other is being unreasonable, a Leasehold Valuation Tribunal can be carried out to determine the price of an extension.
If you have less than 80 years left, however, you will also have to factor the cost of “marriage value” into your extension. This figure is calculated by subtracting the actual cost of the property from the price it could be sold for without a lease. The difference is the “marriage value”, and as properties with short leases are significantly more difficult to sell, this price can be high if your lease is due to expire in less than 80 years.
Why is important to get a lease extension?
There are several reasons why it is so important to get a lease extension as a leasehold property owner:
Ensuring continued ownership
If you have a property with a short lease remaining that you are determined to retain ownership of, you will need to extend your lease to remain a leaseholder. While it is rare that properties will have leases of just a few years left, this does occasionally happen with properties held within families for multiple generations.
Increasing the value of your property
Properties with longer leaseholds are more valuable, whether you are planning to sell or not. If you choose to seek a lease extension, especially if the property is nearing the 80-year threshold, you may be able to add a significant amount of value to the property under your ownership.
Enhancing opportunities for sale
If you have plans to sell your leasehold property, extending the length of your lease can also be beneficial in finding buyers. Mortgage lenders are far more likely to offer their customers options for lending on leasehold properties with more significant amounts of time remaining. The longer the lease, the better it will be for potential buyers and their chance to be approved for a mortgage.
Improving financial opportunities
Remortgaging is a standard option that many property owners choose to access better deals or release money tied up in their property. A shorter lease is a risk to a mortgage company, and you may find it challenging to find a suitable lender to remortgage with. The more time left on the lease, the easier remortgaging will be.
Preventing marriage value costs
If you renew a leasehold or extend it once you have passed below 80 years, you will then be eligible to pay marriage value. This cost is typically 50% of the value that the extension adds to the property lease. If at all possible, you want to extend your lease before this point to reduce these high costs.
How do you qualify for a lease extension?
To extend a lease on a property, you will be required to be a “qualified leaseholder”. There are three criteria you will need to meet to be considered qualified to begin the lease extension process:
You have held ownership of the property for two years or more
The lease granted originally for the property was greater than 21 years in total
The lease is not subject to particular conditions under freehold ownership by the Crown or National Trust
If you meet the criteria above, you are qualified to extend a property lease under the Leasehold Reform Housing and Urban Development Act 1993. Under these rights, qualified leaseholders are entitled to an additional 90 years added onto their lease, with no ground rent charged. This is often defined as ‘peppercorn’ rent, which refers to a ground rent of zero in this case.
For example, if you owned a property with a remaining lease of 100 years, you could then receive an extra 90 years on top, bringing the total time of your lease to 190 years. If you do choose to extend your lease an additional 90 years, you will be required to pay a lump sum or premium to the freeholder, as defined by the Leasehold Reform Housing and Urban Development Act 1993.
What is the lease extension process?
The lease extension process can be broken down into six steps:
1) Check your eligibility
Before you can begin the lease extension process, you will want to ensure that you are a qualified leaseholder. We have covered the criteria you will need to meet above. If you are eligible for a lease extension, you can then continue onwards to the next step.
2) Instruct lease extension solicitors
You will then want to seek the help of appropriately experienced lease extension solicitors to handle the statutory lease extension process. Your solicitor will provide advice and services in submitting formal offers and offer support and guidance in further negotiations if required.
3) Complete a valuation with a professional surveyor
A qualified surveyor can then provide you with a precise calculation of the extended lease on your property. In some cases, your lease extension solicitors may be able to connect you with qualified local surveyors. It is vital that you choose a surveyor that is specifically experienced in valuations for leaseholds.
4) Serve a Section 42 Notice to the freeholder
At this point, your lease extension solicitors will submit a Section 42 Notice to the freeholder. This is the formal request made to extend the lease on the property and includes the premium calculated by your surveyor for the freeholder to consider.
5) Arrange payment of deposits
If the freeholder agrees to the Section 42 valuation and premium, you may then be required to pay a deposit of either £250 or 10% of the premium value. However, if the freeholder does not accept the premium provided, the lease extension process must continue to negotiations.
6) Negotiation and agreement
At this stage, you and your lease extension solicitors will negotiate with the freeholder to achieve a desirable and suitable outcome for the premium. In rare circumstances, the freeholder may be uncooperative, or no agreement can be reached through negotiation. You will then need to apply to the First-Tier Tribunal.
While most lease extension processes are straightforward, there are circumstances in which a tribunal is the only option. However, it is worth noting that this is uncommon, and it is far more likely that your lease extension solicitors can negotiate a suitable agreement before the situation reaches that point. It can be costly for both the freeholder and leaseholder to bring a case to tribunal, both in terms of time and additional fees and costs.
How long does it take to get a lease extension?
The time it takes to complete the lease extension process will vary depending on the complexity of a case. Typically, you can extend your lease within three to twelve months. Instructing experienced lease extension solicitors, efficient valuers and responding promptly can help reduce the time taken to get a lease extension. Your freeholder will also need to respond to negotiations punctually to minimise the time a lease extension takes.
Do I need to instruct lease extension solicitors?
When it comes to the processes surrounding leaseholders and lease extensions, it is important to seek expert legal advice to complete the statutory lease extension process.
It may be tempting to go directly to your freeholder landlord to handle your finances and premiums directly. However, these informal extensions can be a serious problem and often cost you far more than you save on legal costs.
By taking the informal route, you can run the risk of freeholders revising the small print and details of your leasehold, including significant ground rent increases and other costs.
Some freeholders may also choose to grant shorter extensions. The goal of these shorter extensions on your lease is to make it easier for you to pass over that critical 80-year threshold. Providing reduced leases makes it more likely that they will receive marriage value costs when you next attempt to extend your lease.
For example, the freeholder of a property may offer an extension to increase your lease up to 99 or 125 years. Freeholders offering these deals are a red flag in the informal extension process, as their offer provides far fewer years than the 90 years defined in the statutory process. If you are unsure about what a freeholder is offering you and whether it is fair, it is always a good idea to seek advice and guidance from appropriately experienced lease extension solicitors.
The proposed reforms announced by the UK Government in 2021 may reduce the risk of expensive ground rent costs. However, while this can resolve specific hidden fees, it does not prevent freeholders from gaining more from informal negotiations in other ways. If you are new to the lease extension process, opting for the statutory route provides you with far more protection from start to finish.
Over time, an informal arrangement can cost far more than a statutory lease extension does. Experienced freeholders may have far more knowledge of the lease extension system than you do, leading to unfair outcomes from extension negotiations. In order to ensure you get the fairest extension for your lease, it is advisable to instruct experienced and knowledgeable lease extension solicitors.
How much do lease extension solicitors charge?
The cost of a lease extension will depend on numerous factors. A straightforward lease extension process where the freeholder accepts the provided premium will cost less than a process in which negotiations, valuations and other factors are required.
At Elite Law Solicitors, we favour quoting fixed fees, which will only change if due to unforeseen circumstances the process is taking longer than expected.
Negotiating a lease extension can be a tricky legal process, and we would highly recommend getting the guidance of experienced lease extension solicitors before contacting your landlord. If your lease is due to expire in less than the recommended 80 years, it is even more important to have a good solicitor in your corner to help you fight for a fair deal.
We have helped many leasehold property owners negotiate lease extensions, and our accreditation through the Law Society’s Conveyancing Quality Scheme attests to our expertise in all fields of residential conveyancing.
One of our experienced lease extension solicitors will have an initial consultation with you, free of charge, to discuss your situation in more detail. Once we understand your circumstances better, we can provide you with a clearer understanding of how we can help you. We will also provide you with a price quotation and a choice of funding methods at the outset.
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