When buying a property, you can either go down the route of purchasing a ‘freehold’ or a ‘leasehold’. The latter will mean that you don’t own the property outright as the freeholder owns the land the property is built upon, so you'll still have a landlord and a lease.
Maintaining the appeal of a leasehold property is especially important. Shorter leases can put potential buyers off as they may need to pay an increased premium to the landlord to extend the lease themselves.
Properties with shorter leases can also make applying for a mortgage more difficult as lenders may be concerned that the property will decrease in value. The shorter the lease term, the lower the value of the lease.
If you’re considering selling your leasehold property, you might be unsure about whether it’s worth getting a leasehold extension. We’ll talk through how the process works and whether it will be beneficial for your situation.
Get in touch with our experienced Conveyancing Team for initial advice.
How Does a Lease Extension Work?
If you’re considering extending the lease on your property, there are two main ways to go about it. We’ll talk about both in further detail.
Methods for Extending Your Lease
- Statutory Lease Extension
If you’ve been the owner of a lease for a minimum of two years, you’ll usually have a statutory right to extend the lease term for an extra 90 years at a peppercorn rent (effectively nil) under the Leasehold Reform Housing and Urban Development Act 1993.
To start this process, you’ll need to serve a notice to the freeholder requesting an extension of the lease with a suggested premium in return for the extension. Solicitors can’t advise on what the premium will be, so a specialist valuer should be involved at this stage.
Usually, the freeholder will carry out their own valuation and they will have two months to serve a counter notice.
If you’re in the process of selling your property and you don’t have the time or funds to undertake the statutory process, there is an option for the buyer to complete it instead, so they won’t have to wait two years to extend the lease.
- Voluntary Lease Extension
A voluntary lease extension can offer a more informal method for extending your lease. If you don’t qualify for a statutory extension, a voluntary agreement will be your only alternative option.
Unlike with a statutory extension, all terms will be up for negotiation and the freeholder won’t have to add a set number of years to the lease or reduce your ground rent in the meantime. Because of this, the success of a voluntary extension will depend heavily on how willing the freeholder is to co-operate.
We’d recommend getting a specialist valuer’s opinion on any offer. It’s also important to consider that as well as the premium and your own costs, you’ll normally be required to pay the freeholder’s valuers and legal costs too.
If you have a mortgage, you’ll need consent from your lender before going ahead. Our Conveyancing Team can support you with this.
What are the Benefits of Extending the Lease Before Selling?
There are a number of benefits to extending your lease before selling your property, especially for properties with a lease shorter than 85 years, some reasons for this include:
- potential buyers may be put off by the fact that they could need to request a lease extension in just a few years’ time;
- the price payable for a lease extension increases after falling below 80 years;
- lenders will often set a minimum requirement of 70 years on a leasehold before approving a mortgage.
If you’re considering selling your property and you have a shorter lease, it’s worth seeking legal advice early so you’re in the best position for when you come to sell your property.
Are There any Reasons for not Extending the Lease?
In some circumstances, it may not be necessary to extend the lease on your property before selling. These include:
- if you have a long lease (over 90 years);
- you’re unsure if you can afford it;
- you plan to buy the freehold in its entirety.
If you’re not sure about whether extending the lease on your property will be worthwhile, our Conveyancing Team can offer initial advice and provide a free quote for our services.
- How Much Does a Lease Extension Cost?
When extending a lease, you’ll need to pay the freeholder a premium. How much this will cost depends on how many years are left on the lease and on the value of the ground rent. This is especially relevant when there are less than 85 years left on the lease.
You’ll also usually need to pay for the freeholder’s fees and surveyor or valuation fees, in addition to your own legal fees. If you have to get your mortgage company involved to sign documents, they may also charge a fee.
- How Long Does it Take to get a Lease Extension?
How long the lease extension process will take depends largely on the route you take. For statutory lease extensions, it can take between 6-12 months in our experience. For voluntary lease extensions, it’s slightly quicker, usually taking around 3-6 months in total.
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