When should I extend my lease?
Lucy Eveleigh, a Solicitor Apprentice in our Landlord and Tenant department, discusses the importance of being aware of the length of your lease when owning a leasehold property and considers the impacts of the leasehold reform proposals.
Leasehold reforms- what we know so far:
Under the current legislation, the Leasehold Reform, Housing and Urban Development Act 1993, flat owners are entitled to a 90-year lease extension with the reduction of ground rent to zero (as long as you have owned the property for at least two years). This is granted by the freehold of the property in return for a price (the ‘premium’) Lease extensions can also be agreed informally between the flat-owner and freeholder. Terms can vary to the ones under the legislation, however there is no restriction on owning the property for more than two years.
In 2021, the government announced proposals for new legislation that will affect the lease extension process. Along with various other changes, this legislation is expected to provide an extension that delivers a 990-year lease with peppercorn rent and abolishes ‘marriage value’ (referenced in more detail below). This is thought to be implemented in around May 2024, but there is currently no set date.
My lease has a term under 80 years:
Once a lease hits 80 years, it is susceptible to what is known as ‘marriage value’. This ambiguous term refers to the difference between a leasehold property’s value before and after its 80-year (or lower) lease is extended. Once this applies, you will be required to pay a significantly higher price to extend your lease. If you are looking to sell or re-mortgage your property, you will more than likely need to extend your lease. Any prospective buyer’s solicitor will pick up on the lease length and it is rare for a mortgage lender to lend on properties where the lease is lower than 80 years. A longer lease will also increase the property’s market value.
My lease has a term just over 80 years:
As your lease gets close to 80 years, you should be extending your lease. To avoid the effect of ‘marriage value’, it is advisable to get your extension out the way before your lease has reached this 80-year mark.
You may wish to wait for the changes to be implemented as it could mean you end up paying less for an extension, however we are unaware of how much this could be by and whether it is worth the risk waiting.
My lease has a term of over 90 years:
There is no immediate need to extend your lease. A lease of this length should not have any negative impact on selling the property. It is recommended that you wait until the changes to the leasehold system are in place.
Please note, you will require a professional valuer to advise you of the premium you will be paying for your lease extension as we cannot provide you with any valuation advice.
If you are looking to extend your lease, or have any lease related enquiries, please get in touch with Lucy via email@example.com or by calling 01202 558844.