Lease Extensions Explained

If you’re a leaseholder, understanding the process of extending your lease is essential. Lease extensions can offer numerous benefits, but navigating the complexities can be challenging. In this blog post, Winfields Surveyors aims to demystify lease extensions by providing a comprehensive guide. We’ll explain what lease extensions are, delve into the concept of leaseholds, outline the advantages of extending your lease, and discuss the qualifying criteria. By the end, you’ll clearly understand lease extensions and their implications.

What is a Lease Extension?

A lease extension involves a legal agreement between a leaseholder and the freeholder, typically prolonging the lease term by 90 years and reducing the ground rent to a minimal amount, often referred to as a ‘peppercorn.’

Understanding Leaseholds:

To comprehend lease extensions fully, it’s essential to understand leaseholds. Leasehold is a contractual arrangement where the leaseholder purchases the lease for a property from the freeholder. The freeholder retains ownership of the property, including the land it sits on and communal areas. At the same time, the leaseholder has the right to occupy the property for a predetermined number of years. Leaseholds are common in apartments and flats within larger buildings, where separate freehold ownership could lead to conflicts.

Why Should You Consider a Lease Extension?

Obtaining a lease extension offers several advantages to leaseholders:

  1. Securing the Investment: A lease extension under the Leasehold Reform, Housing & Urban Development Act of 1993 grants an additional 90 years to the remaining lease term without any ground rent. This ensures that your property remains a valuable asset that doesn’t depreciate over time.
  2. Preserving Value: By extending the lease by 90 years, you safeguard the property’s full market value, even if you plan to own it for several generations.
  3. Opportunity for Renegotiation: A lease extension presents an opportunity to renegotiate lease terms or update them to align with current legal requirements.

Does a Lease Extension Add Value to Your Property?

Absolutely! Extending your lease enhances your property’s market value by eliminating factors that negatively impact shorter leaseholds, such as:

  1. Increased Renewal Costs: As the lease term decreases, the cost of renewing the lease skyrockets, potentially deterring potential buyers.
  2. Mortgage Limitations: Shorter leaseholds make it harder to secure mortgages, limiting your potential buyer pool.
  3. Ground Rent Reduction: Shorter leases come with higher ground rent costs, but a lease extension reduces it to a negligible amount.

When Should You Extend Your Lease?

Ideally, you should consider extending your lease before it reaches 80 years. After this point, the freeholder becomes entitled to 50% of the marriage value. Generally, the shorter the lease, the higher the cost of extending it. Exploring lease extension options is advisable if your lease is approaching 85 years.

Qualifying for a Lease Extension:

To determine if you qualify for a lease extension, you must meet certain criteria, including:

  1. The original lease must have been granted for more than 21 years or include a perpetual right of renewal clause.
  2. You must have owned the lease for a minimum of two years.

However, some exceptions apply to the qualifying criteria based on specific circumstances, such as when the landlord is a charitable housing trust, the lease is for business or commercial purposes, or the property belongs to the National Trust, The Crown, or a cathedral’s precinct.

The Cost of a Lease Extension:

The cost of a lease extension comprises the premium and the reasonable professional costs for both the leaseholder and the freeholder.

We recommend consulting a professional valuer to estimate the premium range.

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