McHale & Co. Solicitors Blog

Leasehold Extension

Residential Leasehold Extension

Did you know that if your lease has less than 80 years remaining then you may find it very difficult to sell. This is because most mortgage lenders will not lend on a property that has less than 80 years remaining on it.

If you buy a leasehold you purchase the right to live in the property for a set period – usually 99 or 125 years – rather than owning the land it stands on. The land is owned by a freeholder or landlord, who will charge a ground rent.

Over 10% of properties in the UK are leasehold. Most of the leasehold properties are flats but there are a significant number of houses which are also held on long leases.

There is a statutory right to extend your lease at any time but when the residue of the term goes below the crucial 80 year mark, the cost of renewing is substantially increased as the additional factor of marriage value then becomes relevant as set out later in this article. Extending your lease is likely to not only increase the value of your property but also make it easier to sell.

To extend your lease term the following criteria must be met:

  • It must be a long lease, which is one that has been granted for a term exceeding 21 years
  • The landlord must not be a charitable housing trust
  • The lease must not be a business tenancy
  • You must have owned your property for at least two years.

If the above criteria are met you can extend your lease under the Leasehold Reform Housing and Urban Development Act 1993 (as amended) which enables qualifying leaseholders to acquire a 90 year extension to their current lease.

Individual Lease Extensions

A leaseholder who meets the above criteria can extend their lease by serving a notice to their freeholder. A premium will be payable for the lease extension and this figure will have to be proposed in the notice. A surveyor can be instructed to value a reasonable premium to be offered. If the term has less than 80 years remaining, a marriage value must also be taken into account when determining the premium payable which is why the process becomes a lot more costly.

Once a premium has been suggested by the surveyor a notice needs to be served on your landlord that you wish to extend your lease. The landlord then has a period of in which it can either accept or negotiate the terms of your notice.

If terms cannot be agreed within the six month period following expiration of the notice then the matter can be referred by either party to the Leasehold Valuation Tribunal which is an independent body whose decision is final.

Once the terms have been agreed a renewal lease will be drafted and signed by you and your landlord extending the term of your lease to 90 years plus the remaining term on your current lease. The ground rent will also be reduced to a peppercorn rent (zero).

Specialist solicitors at McHale and co can prepare and submit the notice, negotiate with your landlord and agree the terms of the new lease and complete the transaction for you.

Collective Enfranchisement

The 1993 Act also enables flat owners in a block of flats to collectively purchase the freehold interest in their building. A collective notice is served by one nominated lead tenant or alternatively a company can be set up for the purpose of serving the notice.

The requirements are:

  • The block must comprise two or more flats
  • At least two thirds of flats must be held on leases granted for a term greater than 21 years
  • At least half of the flat owners must participate in the process
  • Any commercial parts of the building must not exceed a quarter of building.

Once the notice is served the terms will either be accepted or negotiated. Once an agreement has been reached, the freehold will be transferred to the existing tenants and there will be no further ground rent to pay.

Once the freehold has been acquired the tenants will be collectively responsible for the management of the building. This will include insuring the building and maintaining the common parts although through the purchaser company the property owners could agree to employ an agent to manage the building on their behalf.

If you are considering extending your lease then please contact McHale and Co for some further information.

Categories: Conveyancing

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