How To Extend a Lease on a Leasehold Flat – Frequently Asked Questions
Did you know you may have the right in extending the lease on your flat by up to 90 years?
Most people know very little about the need to extend the lease on their flat and fact that they may be able to force the freeholder to grant a lease extension. Many people only find our about such matters when they come to sell their leasehold flat. Others only really find out about the need to extend once their lease has dropped below 80 years and, by this point, the amount that they can expect to pay by way of a premium will be significantly more than they would have been liable to pay had they took action earlier.
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What is a lease?
A lease is effectively a long term tenancy which is normally held over a flat.
Unless you own a share of freehold, you don’t own your flat out right – you’re simply paying to stay in it for a long time – the term of the lease.
A residential lease is normally initially granted for a period of 99 to 125 years.
If you don’t extend your lease, then it will simply expire and the interest in the flat will revert back to your landlord. This means that you have no lease to either extend or sell in the future.
NB the right to extend your lease only applies to what are known as long leasehold flats i.e. flats for which the lease was granted originally for at least 21 years.
What is the difference between freehold and leasehold?
A leasehold interest is a long term tenancy granted for a set period of time.
During this time you will have the right to live in and have undisturbed use of your property.
However inevitably the lease will come to an end and at the end of this period the ownership of the building will revert back to the landlord or the ‘freeholder’.
It is common for leaseholders to pay a ground rent (a monthly amount of rent) to the landlord.
In addition the leaseholder is liable to pay service charges which will normally cover any maintenance to the building. Flats and apartments are usually leasehold properties – houses are usually freehold, though you do come across the occasional leasehold house.
A freehold interest is the ownership of a property and the land it is situated on.
The only restrictions as to what you can do with your freehold property are found in law and are exercised through the local authority (such as planning permission granted by the local council).
In contrast, owners of leasehold property are normally subject to considerable limitations on what they can and cannot do. Those imitations are contained in the lease itself – and unlike say short-term leases – the assured short tenancy – long leases are not standard and vary considerably in what they allow and forbid – or allow only with the freeholder’s permission.
My Leasehold Flat – How can I take a physical look at my lease?
If you haven’t already got a copy of your lease (and your solicitor should have provided you with a copy when you bought the flat initially), you can obtain a copy of your lease from the Land Registry or your mortgagor. You may incur a fee in doing so. Ask your solicitor for more information on how to request this service.
So if you think are thinking about increasing the value of your property by extending the lease on your flat, please find below links to pages answering some more common questions that our clients raise to help you understand how the whole extended leasehold process actually works.
- Can I extend my lease – read about the criteria for lease extension?
Solicitors and surveyors – find out what role solicitors and surveyors play in the process
How to extend a lease – which explains the lease extension process
- The alternatives – extending your lease or buying your freehold or exercising your right to manage your block
Will a short lease affect the sale potential of my flat?
It certainly will. A flat or apartment with a short lease , despite being cheaper to buy, will in general be much harder to sell – and will certainly be much harder to borrow against. few lenders like short leases.
The fact that your property has a short lease won’t actually stop a sale going through, but it will significantly reduce the number of potential purchasers who might be invested in buying your property. If your lease is as low as 50 or 55 years, you will find that the only likely purchasers are cash buyers looking for a bargain. And that’s a really good reason to extend a short lease on your flat
How much will it cost to extend the lease on my leasehold flat?
The biggest cost involved in extending a lease is almost certain to be the premium you will need to pay to your freeholder for your lease extension. That’s because by extending your lease, your freeholder’s interest in the property is worth less as a result.
And when it comes to getting an idea of the right premium to pay, we would always strongly recommend that you use a specialist lease extensions of – 1 of the few nationwide who are used to valuing lease extension premiums on a regular basis.
Few surveyors do that – and we have a panel of RICS surveyors we have built up over the years who really understand this technical area. And as part of our one-stop shop service, we are always happy to introduce you to 1 of our recommended surveyors or appoint one on your behalf to value your premium.
The alternative to getting a professional valuation is either;
- to rely on 1 of the online lease extension calculators – but these only give you a very rough idea of the kind of premium you might have to pay. They are never accurate and most online calculators don’t even provide figures for really short leases.
- to rely on any lease extension valuation you’ve been given by your freeholder. Bear in mind that lease extension valuation, even using the statutory criteria, is an art rather than a science and 2 experienced valuers will probably come up with slightly different figures. And it’s highly likely that your freeholder is going to want to maximise the price they get – so their 1st offer may well be set unreasonably high. And if you don’t have your own accurate valuation, you’re not going to know that and will risk paying over the odds for your lease extension.
And in addition to the premium, if you’re using the formal or statutory route to get your lease extension you will also need to pay the following
- Your Solicitor’s Fees:
- The Fees charged by the surveyor:
- Unless you can agree a lease extension on a voluntary basis, you will have to pay your freeholder’s own reasonable legal valuation costs for your landlord
I haven’t actually lived in my leasehold flat; can I still apply for a lease extension?
Yes you can, as long as you have owned the lease for at least two years you will more than likely meet the qualification criteria. There is no requirement for you ever to have lived there.
Do I still have to pay ground rent after extending the lease on my flat?
The answer depends on whether or not your lease extension is granted on a formal or informal basis. If you have made a formal application under the statutory route, then the answer is simple – no. In addition to having an additional 90 years added to the end of the lease, your ground rent in future will be set at what is known as a “peppercorn rent” i.e. no further ground rent is payable.
However if you have agreed an informal valuation with your landlord, the situation is different. Firstly, as it is an informal extension, the 2 of you can agree whatever terms you wish – so the question of whether or not you still have to pay ground rent is up for negotiation.
But the Leasehold Reform (Ground Rent) Act 2022, which will come into effect on 30/06/2022, makes a difference. Under that Act, any new lease automatically has a peppercorn rent – and sometimes an informally negotiated lease extension ends up with what is effectively a new lease. And regardless of that, even if it is not classified as a new lease, under an informal lease extension, ground rent will only be payable until the end of the existing term – i.e. as soon as your lease finishes its current term and moves into the extended term, the ground rent becomes a peppercorn. So, if for example, you have 50 years left on your lease term and you negotiate an additional 40 years – ground rent will remain payable for the next 50 years only.
Is a 90 year lease extension automatic?
In short – yes but only if you use the statutory or formal route to extend your lease. If you decide on an informal or voluntary lease extension, then the period of extension is entirely up to you and your freeholder. The extended period can be as long or short as you both agree.
How many times can I extend my lease?
In theory there is no limit. You can extend the lease on your flat as many times as you wish. However this normally applies only to voluntary lease extensions. If you extend your lease using the statutory or formal route, then you automatically get an extra 90 years added on the end of your lease – so you not going to need another statutory lease extension in your lifetime.
But with informal lease extensions the number of times you will need to extend it really depends on how long each individual lease lease extension is. Some people do prefer short lease extensions, purely because they tend to be cheaper – extending a lease just long enough to make the flat easier to sell or mortgage. But short lease extensions are rarely such good value. For a start the cost of valuation and solicitors fees will apply each and every time you extend.
Lease extensions – do you act for freeholders too?
Yes, although the biggest chunk of our lease extension work is acting for leaseholders who want to extend their leases, we also act for a growing number of freeholders. And acting for both parties means we really understand how the process and practicalities work from both sides.
So if you own the freehold of a block of flats (or a leasehold house) and you have been formally served with a statutory S42 leasehold extension request, our specialist team can help:
- we will firstly be able to advise you on the validity of the notice and whether you are therefore compelled to allow the extension.
- we will then liaise with any valuer of your choice, or failing which we can introduce you to one of the lease extension valuers on our informal panel, who will check that the offered premium is fair and will ask for a higher premium if necessary and oversee any further negotiations.
- our solicitors will be able to finalise all of the legal work involved in extending a lease.
And whether you are a freeholder or leaseholder, don’t forget that the lease extension process is subject to strict time limits, so get in touch with us as soon as possible.
How easy is it to extend my lease or buy my freehold?
If you’ve done a bit of research on the subject, you may realise that as an alternative to extend your lease, you can join together with other tenants in your block to purchase the freehold – a process commonly known as leasehold or collective enfranchisement.
Buying your freehold will usually enable you to grant yourself a 999 year lease on your flat and can make great financial sense, as well as giving you much greater control over your block. However whilst negotiating a lease extension is relatively straightforward, and provided you have a solicitor who knows what they’re doing when going down the statutory route,and follows the correct procedure, you’re guaranteed that lease extension, be aware that freehold enfranchisement is often a long, lengthy and difficult process.
In particular, when buying the freehold of your block you need to keep a number of your fellow leaseholders on board throughout. And, depending on the numbers, losing the support of just one of them can sometimes wreck the whole deal. That’s not always a problem with a small block, but when you get to a larger block with 100 or more leaseholders, getting enough of them to commit on day one and stay involved throughout can be a genuine challenge.
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