Leasehold extension has become increasingly popular over time as people wish to preserve the value of their property. This article looks at some important information that you need to know when extending your lease.
Under the Leasehold Reform Act (1993) a tenant is given the right to apply for a leasehold extension for up to 90 years on top of any unspent time remaining on the current lease.
In order to qualify to extend your lease you need to have owned a residential leasehold right for at least 2 years, but need not have been in occupation during this period. The original lease must have been granted for at least 21 years.
Extending your lease does become a more urgent decision if you have 85 years or less to run on the lease. Leases that run below 80 years gain a 'marriage value' premium on any extension. You can work out marriage value by taking 50% of the valuation of the increase in value of the freehold interest after a leasehold extension is awarded. This figure is then paid across to the landlord as a premium one-off payment for the lease extension. If you extend your lease before it has 80 years left to run, then no marriage value is payable.
Leaving your lease until there is less than 40 years left to run makes a sale of the lease near impossible. Mortgagors often do not want to lend to those taking a lease with less than 40 years left to run. Therefore if you extend your lease appropriately you will increase your own chances of selling the property.
'Things to do' before applying for a leasehold extension
Get a valuation of the lease. The valuation is linked to the amount of premium the landlord should be charging you for the extension. Being armed with this information will put you in a stronger position to negotiate with the landlord.
Try to find out who the 'compentent landlord' is, this is relevant if you are a sub-lessee. The definition of compentent landlord is the person who owns the freehold or granted the head lease. In some situations it may be head lesee which has the leasehold interest for a set period.
Check you have the support of your lender when considering extending a lease. As well as this, check your own finances to ensure that you can afford the legal and administrative costs of extending your lease. Note that the landlord could potentially ask you for a deposit of around 10% of the proposed premium before the extension is completed, you will need early access to this money.
Finally, when it comes to the technical aspects of lease extension, make sure you appoint surveyors and solicitors who are highly experienced in this complex area of law - remarkably few are.