Lease extensions – what are your options?
Posted on 5th March 2020
Leases are usually granted to Leaseholders for a set term such as 99 or 125 years. We haven’t lost the plot here in the Property Solicitors Team at MG Legal when we start mentioning marriage but when your lease has less than 80 years left, “marriage value” begins to apply to any valuation.
Marriage value is something that makes the lease considerably more expensive to extend whilst reducing the value of your property.
The good news though is that you can extend your lease either informally or through the statutory route.
When should you start the lease extension process?
If your lease is approaching the 80-year mark – start immediately to secure an extension.
You may not be looking to sell the property, but if you were ever in a position where upon you needed to sell or refinance, then the lower the number of years left on your lease, the less opportunity you will have to sell, remortgage or refinance. In some instances, your lease may actually prevent you from selling, remortgaging or refinancing once you have less than 80 years left. It is also important to note that most mortgage lenders will want a lease with a minimum of 30 years to run after the mortgage term has expired.
Options for extending your lease?
Informal – you can approach the freeholder for an informal lease extension any time during your ownership of the property.
If you can agree the additional years to be granted, ground rent, the premium payable and any other changes to the lease that you both may wish to make.
Informal lease extensions can be more flexible
The lease extension premium is usually lower
This process is usually faster
Whilst the annual ground rent may be reduced t could also be increased so you need to be ready to budget for this
You will need to see consent from your mortgage lender and this will incur additional costs
Negotiations are not always successful
Formal (Statutory Route) – The Law entitles you to extend your lease for a further 90 years. To proceed with the formal route the property must be listed in your name at the Land Registry. Formal notice will be served on the Freeholder and the notice sets in place a strict timeframe
No need to seek consent from your lender
Lease extension will grant you the additional 90 years on top of the unexpired term of your current lease
Will reduce your ground rent to a peppercorn rent, meaning that no ground rent is paid
Amendments to the lease are limited to removing obligations that no longer exist or correcting errors
If you miss deadlines your lease extension application may fail and you would be liable for the freeholder’s costs
Can take longer to complete
Premium payable to the freeholder for granting the additional years may be higher on a formal extension due to the loss of future ground rent income the landlord would receive.
If you have a good relationship with your freeholder, then it is often worth considering the informal route first as it is usually faster, cheaper and more flexible. However, negotiations are not always successful, and it can lead to an increase in ground rent. The good news is that, if you can’t reach agreement through the informal route, you do still have the right to apply for a formal lease extension.
If an approach is made to your freeholder but an informal agreement cannot be reached, you do still have the right to apply formally.
MG Legal, Property Solicitors in Lancaster, can guide you through your lease extension. Why not email us via email@example.com or call 01995 602 129.
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