What is a Lease Extension and How Long Does it Take?
As the number of years on a property lease decreases, so too does its value, marketability and acceptability to mortgage lenders. Typically, problems can arise when a lease reaches around 70-75 years.
The price payable for a lease extension increases once the lease falls below 80 years and so it’s a good idea to start considering the position when the lease has about 85 years left. It’s usually possible to deal with the problem by way of a lease extension, whereby the number of years is increased. This is an area our Conveyancing Solicitors specialise in.
For free initial advice get in touch with our Conveyancing Solicitors.
There are two ways a property lease can be extended:
Statutory Lease Extension
If you’ve been the registered owner of the lease for at least two years, you usually have a statutory right to an additional 90 years at a peppercorn rent (nil effectively). The procedure is started by you serving a notice on the freeholder requesting an extension of the leases and suggesting a premium (price) in return for the extension.
We cannot advise on the premium and so a specialist valuer should be engaged to do so. The service of this notice initiates a statutory timetable for various steps to be taken. Typically, the freeholder undertakes their own valuation and has two months to serve a counter notice, which usually, but not always, accepts your claim but requests a higher premium.
Negotiations then take place between the two valuers, with a view to agreeing the price. How long these negotiations take largely depends on how far apart the two valuations are to begin with and the speed and efficiency with which the valuers correspond. If terms haven’t been agreed within six months of the freeholder’s counter notice, an application should be made to the First Tier Property Tribunal to protect your claim and to finalise matters.
It’s fairly unusual for the process to result in a Tribunal hearing. In addition to the premium, you’ll have to pay the freeholder’s initial valuation fee and reasonable legal fees (other than any relating to the Tribunal), your own legal and valuers fees and Stamp Duty Land Tax (SDLT) in certain circumstances (if the premium is over £40,000).
If you are looking to sell your property and don’t have the funds and/or time available to conclude the statutory process, there is a mechanism whereby the buyer can step into your shoes, so as not to have to wait the two years to extend the lease themselves.
In our experience as Conveyancing Solicitors, the whole process typically takes 6-12 months, but can, on occasion, differ from this.
Voluntary Lease Extension
Before serving a notice, it’s worth considering whether a less formal approach may be more fruitful. In any event, this is your only option if you don’t qualify for a statutory extension. Whether it’s a viable option largely depends on the type of freeholder and how co-operative/responsive they are.
You could ask your freeholder if they will agree to a lease extension and, if so, on what terms. They do not have to respond or suggest terms but, if they do, there is no fixed amount of years to be added and the ground rent doesn’t have to be reduced – all terms are up for negotiation.
As such, it’s advisable to obtain a specialist valuers opinion on the package on offer. Often a freeholder will welcome the prospect of receiving a premium and the added attraction of it being easier and quicker than the statutory process. Others will simply insist on the service of a formal notice, sometimes for accounting/administrative reasons.
Where you need to use funds from a sale to pay for the extension, it’s often possible to complete the two transactions at the same time. There is no set timetable for completing a lease extension by agreement, as you are “in the freeholder’s hands” to a large extent and they are at liberty to withdraw/change the terms on offer at any time.
In addition to the premium and your own costs, you’re likely to be required to pay the freeholder’s valuers and legal costs. If you have a mortgage, your lender’s consent will be required, which our Conveyancing Solicitors can deal with for you.
In our experience, the whole process typically takes around 3–6 months, but can, on occasion, differ from this.
This provides a broad outline of the two ways to extend your property lease. However, every case is different and specific legal advice tailored to your particular needs can be provided by our Conveyancing Solicitors on request.
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