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Extending a residential lease

As a leaseholder of a flat, you have the right to extend your lease if you have lived there for two years or more. Even if you have not lived there for this length of time, the freeholder may still be prepared to agree to a lease extension, although you will not be able to insist on this.

Extending your lease may be advisable once the length remaining drops below a certain level. This is because mortgage lenders will not lend money against shorter leases. Each lender has their own criteria, but generally speaking it can be difficult to secure a mortgage when a lease has less than 70 years remaining. Some lenders will not lend when less than 80 years remain. You are usually advised to start considering extending your lease well before you reach the 80-year mark.

When should I extend my lease?

Even if you are not planning on selling your property imminently, you may still be advised to extend your lease as it approaches the 80-year mark. The reason for this is that the premium you will be required to pay to the landlord will increase, the less time there is left on the lease. The increase is quite substantial between 85 years and 75-70 years, when it will cost thousands more to extend.

If you do not extend your lease, you will find it very difficult to sell, as you will only be able to sell to cash buyers and not anyone who might need a mortgage.

How do I extend my lease?

You may have a formal legal right to extend your lease and alternatively you may be able to extend your lease informally if your landlord is open to this. Whichever route you choose, you are strongly advised to seek legal representation as this is a complex area of law and it is important to ensure that the process is carried out correctly.

If your landlord is agreeable in principle, your solicitor can enter into negotiations on your behalf to try and settle on the amount that you will pay.

The formal route requires you to follow a set process in requesting an extension. After notifying the freeholder and instructing a solicitor, you will need to ask a surveyor with leasehold valuation expertise to carry out valuations. These are the figures that will be used to work out the premium you will pay to your landlord.

Your solicitor will draw up a formal offer and, where required, pay a deposit to the landlord.

The freeholder may accept your offer or may negotiate. If you are unable to reach agreement over the price to be paid, you can ask the court known as the First Tier Tribunal (Property Chamber) to decide the premium.

You will also need to pay the landlord’s reasonable legal fees.

How is the premium for extending a lease calculated?

The cost of extending a lease depends on the value of the property, the number of years remaining on the lease, the annual ground rent, what major improvements may have been made to the property by the leaseholder and the so-called ‘marriage value’.

Marriage value is only used as part of the calculation when the length of the lease has fallen below 80 years. It is calculated by looking at the difference in the following totals:

Firstly:   The value of the leaseholder’s current interest in the property

                The value of the landlord’s current interest

                                And

Secondly:  The value of the leaseholder’s interest under the new lease

                The value of the landlord’s interest under the new lease

It is a complicated calculation and as it is based on valuations disagreements can arise over the amount that should be payable.

By how much can my lease be extended?

The current rules allow the lease of a flat to be extended by 90 years. The government is considering leasehold reforms that could give leaseholders the right to extend by 990 years, but this is not yet law and there is no timescale in place for implementing this.

The government may also look at abolishing marriage value at some stage in the future, but not in the current round of reforms.

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If you would like to speak to one of our expert property lawyers, ring us on 0333 305 5189 or email us at info@lpropertylawyers.co.uk

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