Residential Lease Extensions

Most leasehold properties are sold with a 100+ year lease, with some having a 999-year lease, which is seen as a virtual freehold.

However, if the lease term drops to less than 80 years, it can become difficult to sell or remortgage. This is because, in order to extend a lease of less than 80 years, you would need to pay the Landlord 50% of the marriage value, which is the increase of value of the property the lease extension generates. In other words, if by extending the lease, the value of the property increased by £20,000 then you would have to pay the Landlord £10,000.

Therefore, it is generally seen that once the lease term is less than 90 years you should consider whether to apply for a lease extension.

Current Rules

To be able to extend your lease you have to have been the registered owner for at least 2 years. You can ask for the lease to be extended by 90 years and the ground rent to be reduced to zero (a peppercorn).

You will need to have valuation survey undertaken on the property to establish the premium payable to the freeholder to extend your lease.

Once the valuation has been undertaken you can instruct solicitors to serve a Section 42 Notice on the Landlord.

Your Landlord will have 21 days to request further information, such as proof you have owned the property for 2 years, and carry out their own valuation. They can send a Section 45 Counter Notice within 2 months of receiving your initial notice. The Section 45 notice will do one of the following:

• Agree to your request on the terms set out in the Section 42 Notice
• Agree to your request but propose different terms, for example a higher premium
• Not agree to your request, and set out the reasons why

There then maybe some negotiation in order to agree on terms; if they can't be agreed upon, you have the option to apply to the Leasehold Valuation Tribunal for a determination.

When agreement has been reached, the Landlords solicitors will draft a new lease, which will then be reviewed and agreed by your solicitors. This can then be signed and a completion date agreed.

After completion the new lease will be registered at the Land Registry.

What are the costs?

A lease extension can be quite expensive, however the increase in value of the property usually is more than the costs, especially if the lease is extended prior to dropping below 80 years. The things to consider

• Costs of the valuation
• Cost of your legal fees
• Cost of your Landlords legals fees – these generally have to be covered by you
• Stamp Duty Land Tax – this is only usually relevant on second homes which are charged at the higher rate.
• Premium
• Marriage value – only if the lease has less than 80 years to run.

New Rules

The government is currently looking at changing the law in this area to make it easier and fairer for leaseholders to extend their leases. The legislation in its current form proposes

• Increase the number of years the lease can be extended to 990 years
• Abolish the marriage value
• Abolish the need to have been the owner for two years.
• Stop the Leaseholder having to pay the Landlord’s legal fee.

Currently, it is unknown when these changes will come into effect, and it is possible that the above proposals may change again.

At Heald Solicitors we are happy to assist you with your lease extension.