Q: Do I need a lease extension?
A: This depends on your individual circumstances. Leases are time-limited assets. As time goes on, your lease term diminishes. The shorter your lease becomes, the more difficult it will be to sell the property or to obtain finance against it. A lease extension can also be used as a tool to tackle other issues within your existing lease – for example, a problematic annual ‘ground’ rent.
Q: How do I go about extending my lease?
A: The simplest method is by agreeing a deal with your freeholder – or whomever has capacity to grant you the lease extension, if this is not the freeholder. This informal agreement carries dangers. You may be overcharged, or ignored. A freeholder/landlord has no obligation to make you an offer, let alone a fair one. Alternatively, there are statutory rules in place allowing you to force your freeholder/landlord to grant you a lease extension. We would not recommend attempting to following these routes on your own, without taking legal advice.
Q: Is the law around lease extensions changing?
A: Yes! In fact, some of the law has already changed governing rents in new leases and lease extensions. 2024 also saw the passage of new legislation in the form of the Leasehold and Freehold Reform Act 2024. This was passed by Parliament just before it closed ahead of the general election. Albeit a headline-grabber, much of the legislation has yet to be ‘commenced’ – in other words, very little of it has any legal effect yet. While the new government has signalled its intention to continue down this path to reform, for the time being at least the same rules apply for ongoing and new lease extensions. What this does add is another element of complexity and consideration to each leaseholder/freeholder’s decision-making process. The decision as to whether to extend a lease or wait is more difficult than ever, and this is simply another reason you should take advice before embarking on the process.
Q: How much will my lease extension cost?
A: As above, this may be liable to change in the not-too-distant future. However, under the current regime your lease extension’s price will be determined by a number of factors including the underlying value of the property, the amount of rent payable and the number of years remaining on your lease. We would always recommend a professionally qualified valuer with experience in the area is consulted so that you have a broad idea of the cost involved in the lease extension before you approach a freeholder.
Q: Okay, I want to extend my lease. I understand I should seek legal advice and valuation advice. Is there anything else I can do?
A: Yes. There is never any harm in approaching your freeholder and asking them if they’re prepared to make an offer. If you are on good terms with them, you may be able to strike a good bargain. But, it is always worth taking valuation advice first so that you know you are getting that good deal.
Q: I don’t know who my freeholder is. What do I do?
A: Your first port of call should be checking any ground rent or service charge demands you may have received recently. They may include your freeholder’s name and details – or if not, your immediate landlord. If you are still at a loss, you can speak to a solicitor or hire a tracing agent (if you know who your freeholder is but not where they are). Ultimately if your freeholder/immediate landlord cannot be traced and you need a lease extension, you may need to apply to Court to step into the absent individual/company’s shoes.
Q: What terms do I need in my lease extension?
A: You should always speak to a legal advisor before you agree terms. What is perfect for one leaseholder may be disastrous for you. In basic terms, you should be extremely wary of accepting a lease extension where your term increases by fewer than 90 years. You should also be cautious about any ongoing ground rental liability. Although the law has changed in this area, that does not mean your freeholder necessarily knows this. What is more, if you have a problematic ground rent in your lease now, be sure not to agree terms with your freeholder and accidentally fail to deal with that ground rent properly.
The above does not offer a comprehensive outline of all of the current rules and regulations involved in the area of Lease Extensions– merely a general outline of the area for those looking for a place to start. We would recommend you seek legal advice based on your own circumstances.
If you are a residential leaseholder or a freeholder and you need legal advice whether connected to the points made in this article or otherwise, please do not hesitate to get in touch via alex.crabbe@rawlinsdavyreeves.com or 01202 558844.
