Should You Be Thinking About Extending Your Lease?
If you own a Lease to your property, you will know that it lasts for a specific number of years. As each year passes, so that term reduces and the value of your asset slowly diminishes until eventually if you do nothing about it the lease will expire and your asset will be worthless.
A lease extension enables you to add years back onto the lease. This can be done through negotiation an agreement directly with your landlord, but also through the statutory route introduced by the Leasehold Reform, Housing and Urban Development Act 1993. This Act allowed most tenants of long leases to set in motion the process of extending their lease, even if the Landlords are not particularly keen to grant that extension.
The Act makes it a right for a tenant who has owned the property for at least two years to extend their lease by an addition 90 years and at the same time reduce the ground rent to zero. This is known as a Statutory lease extension. Before this Act came into place a Landlord could refuse to grant an extension altogether and even where they did agree, could demand whatever Premium they wished from the Tenant. The Act gives the Tenant the right to Compel the Landlord to grant the Lease extension and if the Premium can’t be agreed by the parties, there is scope for the independent body known as the Leasehold Valuation Tribunal to set the amount.
When is the Right time to extend your lease?
The important thing to remember is that the shorter the length of your lease the costlier it will be to extend it. This cost increase exponentially once a lease falls below 80 years, so it is essential that you deal with this before the Lease gets that low. This is because of something known as “Marriage Value,” which is explained below.
The other reason why you should not let your lease run down is the reluctance of Mortgage Lenders to lend on short leases. As a result, if you are intending to sell the property, this may make it harder to find a buyer for your property. It would also make it more difficult for you to re-mortgage the property. Each Lender has different requirements as to how long a lease should be before they will agree to lend. However, a buyer will find it hard to get a mortgage if the lease has less than 85 years left to run. Some lenders are now asking for considerably longer leases than this.
What is Marriage Value?
When you extend your lease, this will naturally result in an increase in the value of the asset you own. A lease with 180 years left to run and with no ground rent is going to be more valuable than a lease with only 90 years and a ground rent of £150 per year. If you extend the property when the lease is below 80 years this increase in value will be taken into account when calculating the Premium as the Landlord will be entitled to 50% of the increase in value. This is known as the Marriage value.
Am I better off coming to an agreement with the Landlord or should I go through the Statutory route?
If you have a landlord that is willing to negotiate a lease extension with you then this may be a quicker, less stressful way to proceed as, once a figure is agreed, you are likely to complete the extension in a matter of weeks. Be wary that you do not accept a premium that is too high doing it this way. You should get advice from a surveyor and check the online lease extension calculators before reaching agreement.
The procedure when going through the statutory route is much longer and trickier. There are legal notices that must be served and deadlines to keep. If you get any part of the process wrong, you could invalidate your application and have to start again. Make sure that you use a solicitor with experience in this area, otherwise you could, very easily, come unstuck.
On balance if you reach the conclusion that the premium agreed by negotiation is reasonable, then it is advisable to proceed this way, even if you think that you may be able to reduce your premium slightly by going down the statutory route. You may also be able to negotiate a greater increase in the term than the 90 years that you are entitled to by statute.
You should view extending your lease as an investment rather than an expense. Provided you extend your lease when there are more than 80 years left, then the value of your asset will increase by more than he costs you will incur. For the reasons given here you should never let your lease fall below 80 years and you should be looking to extend it a few years before you reach that point.
If you are looking to extend your lease and would like to discuss any aspect of the process, please contact me (07792 869095 or by email: firstname.lastname@example.org) to arrange a free initial consultation. My firms’ fees for acting in this area are competitive and you will receive a dedicated one to one service throughout the process.
My Firm is also able to help you with Leasehold Enfranchisement (buying up your freehold).