What should you do if you need to extend your property lease? Sarah Cowley, Partner in Coodes Solicitors’ Residential Property team, outlines the options when your property lease is nearing the end of its term.
Whether you own a flat in a purpose build block, over a shop or within a converted building, you will have been granted a leasehold tenure. That means that you own the property, but not the land on which it was built. You have the right to own and live in the property for as long as the lease is valid, but the land remains the property of the freeholder. Importantly, the freeholder can claim back the property when the lease term is up.
If you have 90 years or under remaining on the leasehold term, your property will diminish in value. It is important to look at your options as soon as possible. Act now because the shorter the term the more it costs to extend it.
It is common for new leases to have a 999-year lease term but this was not always the case. Up until a few years ago, it was common for properties to have 99 or 125-year lease terms. And these leases are now diminishing. According to recent press reports, an estimated 2.1million homes in England and Wales have leases of fewer than 80 years.
Banks’ and building societies’ requirements become more stringent as time goes by, with many lenders refusing applications on leases of 80 years and under.
The cost of extending a property lease can vary dramatically. A number of websites offer leasehold extension calculators, but these only offer estimates. The key issue in calculating the cost of an extension is the length of the lease.
Due to the formula for calculation, 80 years is the most important trigger for a dramatic increase in the cost. This includes compensation for the freeholder for the delay in not getting his property back. The home owner has to pay around half of the increased value of the property following the lease extension. This is called the ‘marriage value’.
In a recent high profile case, a freeholder asked the leaseholder for £42,000 to agree an extension on 23-year lease on a flat in Chelsea. This case attracted widespread criticism of the leasehold system and the costs that leaseholders can face when extending their lease.
If your freeholder is not co-operative or you are unable to reach an agreement and you have owned your property for a period of two years you are entitled to make an application for an extra 90 years added to the end of your lease term with the ground rent of a peppercorn (NIL).
If you find yourself in this situation, do not despair. The procedure can be complex, but we are here to help.