So you’re the owner of a leasehold property, and you are considering extending the length of your lease to further cover your assets, thus securing yourself more financially for the future. How do you go about extending your lease?
Is it necessary for you to extend the lease on your property?
Lease extensions are usually good for 90 years, so once you have decided to extend your lease it is unlikely that it will need extending again in your lifetime.
When is a good time to extend?
The price of a lease extension depends on how much time you have left on your current agreement. Ideally, you’ll want to extend your lease before it drops to 80 years or less, as afterwards the prices charged for a lease extension increase dramatically.
If you own a short lease of 60 years or less, the cost of extending it will increase exponentially and it can get extremely expensive. It is better to talk to an adviser if you are considering a lease extension for a lease with 60 years or less remaining. Another factor to be aware of is that owning a property with a lease of 75 years or lower will also make it harder to sell because people are not likely to want to take on a property with a lease that is going to be expensive to renew. Ergo, it is better to make sure that you renew it in good time to avoid painting yourself into a financial corner if you ever think about selling.
What do I need?
First of all, you will need a qualified solicitor to advise you of the process. Make sure to do a good amount of research before choosing your solicitor, as this can make a lot of difference when it comes to paying fees. Then get the lease officially surveyed by a professional surveyor, who will give you the best indication of how much you should pay for the lease extension. It is possible to calculate the cost of the lease on your own but to avoid making mistakes it is better to ask for help from a professional. Remember that this is your home we are talking about, not some one off short term investment. It is better to have done your research and to be sure when extending your lease.
You can then either approach the freeholder in person, or your solicitor will serve a ‘tenant’s notice’ which is a formal application for an extension. The freeholder will ask for a deposit which is generally 10% of the lease cost stated in the notice, or around £250. Your freeholder will then accept or deny the lease extension offer. Your solicitor and your freeholder will discuss a suitable price, or if they cannot agree on a price, you can apply for an extension at the Leasehold Valuation Tribunal.
How long is the process?
It depends on the frequency of communication between you, your solicitor and your freeholder, but it can take a number of months to complete the process. If you apply for a lease extension at the Leasehold Valuation Tribunal, you will normally have to wait around 4 months for a hearing. After that, you will receive a letter from the LVT stating how much you will need to pay for the extension.
Is it worth it?
Ideally, if you are planning on extending a lease, you need to do it before the current lease drops to 80 years or less. This is because after that you have to pay 50% of the property’s marriage value on top of the normal lease extension price. The Marriage Value is the extra value the lease extension would add to your property, so lease extensions are both important to have, and can get incredibly expensive if your current lease drops to 80 years or less. Depending on the amount of time left on your current lease, extending your lease can definitely be worth it.
What about freehold?
If you are dead set that the property is to remain in your family for generation after generation, you might want to look into buying the freehold of your home. However, this is not often recommended as there are complicated legal procedures and costs involved in the process. It also makes it far more complicated if you live in a semi-detached or terraced building, or a building divided into flats, as you would need to obtain permission and agreement from over half of the leaseholders. It is extremely unlikely ever to happen, but it is important to know that the option is there if you need it.
You should always ask for assistance from a professional solicitor and surveyor when looking to applying for a lease extension. Having expert assistance from a licensed professional will help to make the whole process run at a smoother pace, giving you more time spent on actually enjoying your property!
Article provided by Sara Bryant, an independent content writer working alongside a selection of companies including Tim Greenwood and Associates, who were consulted over this post.