What Is A Lease?
It is a legally binding agreement between a Landlord and Tenant which creates an interest in the property.
Unlike a freehold property, the interest created by a lease is for a defined term of years, generally in return for the payment of rent. The lease will state your rights and responsibilities as a leaseholder, and your landlord’s rights and responsibilities. When your lease term ends, ownership of the entire property goes back to the landlord, typically known as ‘revision’.
What Is Meant By Lease Extension?
A lease extension is a procedure of adding years back onto the lease and extending the time you have before the property goes back into the ownership of the landlord.
You can do this by negotiating with the landlord directly, known as the informal route, or by serving a Section 42 notice, known as the formal route.
Why Extend A Lease?
- Extending a lease with less than 80 years remaining can significantly raise the value of your property.
- If your lease is short term (not many years remaining before going back to the landlord), few mortgage lenders will be prepared to lend against it, and so it will be difficult to sell the property, meaning your potential pool of buyers will be limited to just cash buyers.
- Properties with a short term lease will be difficult to remortgage for the same reason as mentioned above.
- As the lease length depletes, the cost of extending the lease goes becomes greater.
- If the lease term is below 80 years, it attracts marriage value, meaning if you lengthen the lease term the freeholder is entitled to 50% of the cost which the extension adds to the property.
Who Can Extend A Lease?
Anyone considered to be a ‘qualified leaseholder’ can apply for a lease extension.
You’re considered ‘qualified’ if:
- You have owned the property for at least two years
- An original lease granted was for a term over 21 years
Should I Extend My Lease Before Selling?
Whether to extend your lease term before selling depends mainly on how long you have left on the lease and how soon you wish to sell.
Time left on the lease:
- +90 Years = not worth extending
- 90 To 85 Years = worth extending
- 85 To 80 Years = Worth extending or at least get the process started
This is essential because the new tenant will not be able to request an extension for 2 years, by which time the lease could be less than 80 years, at which stage it immediately becomes more costly to extend, and this could also influence the cost you sell the property for.
- If the lease term is below 80 years, and the number of lenders willing to offer mortgages against the property begins to lessen. Only a handful of lenders will lend and the terms would be less favorable
- If the lease term is below 60 years, it may be not possible to gain a mortgage of any kind at all
How Long Does It Take To Extend A Lease?
It can be expected to take 4 to 12 months
- Getting valuation advice
- Serving a Section 24 Notice (if taking the formal route)
- Getting a counter notice
In the section 42 Notice, you should give the freeholder at least 2 months to respond.
How Much Does It Cost To Extend A Lease?
The total cost of your lease extension will consist of two parts:
There is no way to put a predicted fixed price on the premium as the final figure will be the outcome of the negotiation between you and your landlord.
- Professional Fees, Taxes And Costs
Even for the straightforward kind of lease extension, include:
- Your solicitor’s fees
- Your surveyor’s lease extension survey cost
- Your landlord’s legal fees
- Your landlord’s lease extension survey cost
Step-By-Step Lease Extension Guide Process
- First, check whether you are an eligible leaseholder. Your original lease should have been longer than 21 years, and you should own the property for two years or more.
- Ensure you have the funds to complete the procedure, which can cost from several thousand pounds.
- Find out who possesses the freehold and if no freeholder can be found apply for a vesting order.
- Hire a surveyor with specialized knowledge of both the local property market and the leasehold.
- Hire a solicitor who has experience in extending leases.
- Consider whether to approach your landlord personally to discuss extending your lease or get your solicitor or surveyor to do this for you.
- If your landlord agrees to negotiate and you reach an agreement mutually, generate an informal letter.
- If your landlord accepted your informal letter, you can now generate a formal offer.
- The landlord will serve a counter-notice, either accepting your proposal or rejecting your proposal.
- If rejected you can apply to First Tier Tribunal or Lease Valuation Tribunal. If you have got a mortgage on the property, your lender will need to approve the lease extension.
- Then your solicitor will finalise the lease extension.
Here at Direct Solicitors, our experienced solicitors’ team can ensure they get the lowest possible lease extension premium for you from your landowner. As soon as premium has been agreed, your hired solicitor will continue conduct by serving the Section 42 Notice, reviewing the new lease and then registering the new lease on your behalf. Contact us today on 08000 250 250 or fill in our online form and get a callback.