Are you confused by lease extension and wondering whether you should extend your long term lease or not, and if so when?
How does a lease work?
A lease is the right to live in a property awarded by a landlord to a tenant for a set period of time. Long leases are usually given for 99 to 125 years and at the end of this period (although the tenant may carry on living in the property) the landlord will own the freehold.
What are the benefits of extending a lease?
Extending a lease increases the value of the property if you want to sell. A property which has a lease of at least 100 years left to run, can normally sell for the same amount as the freehold would do. However if the amount of years drops below this, then the value of the property diminishes accordingly.
The likelihood of selling your property increases if the lease is longer due to the requirements of mortgage lenders. Some lenders specify that the lease must have at least 30-35 years to run on top of the length of the mortgagei.e. a 25 year mortgage plus the 35 years requirement equals a 60 year lease). Other lenders merely state that they will not mortgage leases with less than 70 years left to run. As many high street mortgagors will not lend on short leases, not extending your lease could put potential buyers off your property.
If you still have 80 years or over on your lease then it will cost less to extend now than after these years have gone past. A lease with less than 80 years left to run attracts a 'marriage value', which is essentially a premium charged on a lease extension. Marriage value is calculated by taking 50% of the valuation of the increase in the freehold interest after an extension is given. This figure is then paid across to the landlord upon your extension.
Am I eligible to extend my lease?
There are some basic requirements you must satisfy to extend your lease; you must have owned the property for 2 years (which does not necessarily mean you must have resided there) and the original lease was granted for 21 years or more. If you satisfy these criteria then you should have the right to extend your lease for up to 90 years without having to pay further ground rent.
There are, however, certain circumstances that will stop you from extending your lease, including:
- You reside in a flat and the majority of the leaseholders have applied for enfranchisement (purchasing the freehold).
- Your original lease was granted for less than 21 years .
- You have sublet out the property on a sublease of at least 21 years.
- Your lease has already come to an end.
- The freeholder is charitable trust or national trust.
- The freeholder wishes to demolish the property and can evidence this with either planning permission or by employing a developer (NB in circumstances such as this you may be entitled to claim compensation).
If you are unsure as to whether of not you are eligible to extend your lease then you should seek advice from an experienced leasehold extension solicitor.
Be aware that the landlord must have a good reason in order to resist your application for a leasehold extension, if you have been refused on grounds which do not match any of the above then once again you should speak with a leasehold extension solicitor who can advise you further on your rights.