Whether you currently own a property with a short lease or you are looking into purchasing, understanding lease extensions is key. The process is not always simple; however, you might be surprised at some of the rights that are granted to all leaseholders. Here we look at six things that you need to be aware of.
- Your lease might not affect you – but it will affect the value of your property
Some homeowners and buyers get confused by the concept of a lease. After all, if a lease runs for another 90 years, they will surely have left the property or even passed away by that time and it won’t be their problem! But while this may technically be true, and that having a leasehold property gives you the right to live in the property for the extent of the lease, it can affect other areas.
Having a short lease will inevitably affect the value of the property as well as how attractive it is to buyers. It always advisable to extend your lease as soon as possible.
- Many lenders will not finance properties with a short lease
Having a short lease not only contributes to reducing the value of a property, it can also make it much harder to find a buyer. This is partly due to the fact that many lenders will not consider offering finance on a property with a short lease. And it should be noted here that a ‘short lease’is usually considered to be anything less than 80 years.
When there is less than 80 years left on a lease, the property attracts something called ‘marriage value’ which affects how much it will cost to extend the lease. The fewer years remaining on the lease, the greater the marriage value, which can make obtaining a lease for a property extremely expensive.
- Leaseholder have rights to extend their lease
If you have owned the property for at the least the last two years the you have the right to add 90 years to whatever is current left on the lease. This is known as the statutory lease extension and it was established under the Leasehold Reform, Housing and Urban Development Act 1993. If you own a property you can exercise this right, however, you will have to pay a premium to the freeholder – and arranging a suitable fee can sometimes be challenging. To give you an indication of the potential costs use this lease extension calculator.
- There are other ways to extend your lease
The statutory lease extension is not the only way to extend your lease. It is also possible to extend with a negotiated lease extension. In some cases, this can be preferable, and it may often be the proposal set forward to you by the freeholder. The freeholder may even offer you a cheaper price to carry out a negotiated lease extension rather than a statutory lease extension.
However, this does not necessarily mean that it is right for you. It is important to look carefully at the terms of a negotiated lease extension as it is not bound by any of the procedures or rules set down in the Leasehold Reform, Housing and Urban Development Act.
- The process of getting a lease extended can seem complicated
Under the terms of Act, it is possible to extend the lease by 90 years with no ground rent charge applicable over that time. As this may be considered unfavourable terms by the freeholder they will often suggest a premium fee that is very high. It is highly recommended that you work with an experienced solicitor who will be able to negotiate that premium.
It is also essential that you have a lease extension survey carried out, as these will be able to suggest the kind of costs that you should be expected to pay.
- You need to be aware of the costs
Extending a lease can be very expensive, and the costs increase exponentially as the lease gets shorter – due to the aforementioned marriage value. This means that extend a relatively long lease (over 90 years)may seem expensive if you are quoted perhaps £3,000 – but you should be aware that as these lease drops to 80 years this figure could be closer to £10,000,while leaving it until there are only 70 years remaining could see you face£20,000 or more. These numbers are only indicative and depend enormously on the property and other factors – however, they are indicative of the fact that there is no benefit in waiting.