If you own a leasehold property, you may need to extend your lease. We explain why it might be necessary, look at the lease extension process, and answer the question, ‘How long does it take to extend a lease?’
Why do you need to extend a lease?
Leases are granted for a set period of time—for example, 99 years or 125 years. Once the lease's remaining time reaches the 80-year mark, the property's value may decrease.
This is for two main reasons. Firstly, lenders may decline to lend against a property once the time remaining on a lease falls below a certain level. Each lender has their own criteria, but it is often around 70 years.
Secondly, there is currently an increase in the amount you will have to pay to formally extend your lease once there are fewer than 80 years remaining. This is because you will need to pay the freeholder an additional sum known as ‘marriage value’. This is based on the value by which your property will increase once the lease extension has been completed. The freeholder is entitled to charge half of the marriage value figure for extending the lease on top of the premium.
Do I have the right to extend my lease?
Most leaseholders have the right to extend their lease. Provided you have owned the property for at least two years, and the original lease was granted for 21 years or more, you can formally request that your leaseholder, also referred to as your freeholder, extend your lease, and they cannot refuse.
How long does it take to extend a lease?
The time taken will depend on whether a formal or informal lease extension process is followed. Your freeholder may be prepared to agree to extend your lease informally. The slight disadvantage with the informal process is that they may pull out partway through the transaction. However, it can be quicker, as you will not need to wait after serving a notice, and you may be able to complete it in three to six months.
If you use the formal route, it is likely to take six months or more. It is essential to follow the correct process to ensure the freeholder can extend the lease.
The process of extending a lease
The formal lease extension process is set out in the Leasehold Reform Act 1993. The new Leasehold and Freehold Reform Act 2024 will make some changes, including giving leaseholders the right to a 990-year extension. The current period is 90 years for flats and 50 years for houses.
The new law could also make it cheaper for some leaseholders to extend their leases, as marriage value will be abolished.
Initial valuation
The first stage is to instruct a leasehold extension solicitor and a lease extension valuer. These need to be experts in lease extension as it is a separate and more complex process than the purchase process.
You should assess the likely costs at this stage to ensure you have enough funds available. As well as paying a premium to the freeholder, you will also need to pay your solicitor and valuer as well as the freeholder’s reasonable legal and valuation costs.
The valuer will prepare a valuation of the premium payable to the freeholder based on several figures, including the current market value of the lease. They will usually provide a prospective highest and lowest figure, which you can use to negotiate with the freeholder. They will also advise you of the figure to offer to the freeholder when making your initial approach.
Serve notice to freeholder
Your solicitor will prepare a notice in accordance with section 42 of the Landlord and Tenant Act 1987. They will identify the freeholder and arrange for the notice to be served on them. The notice will advise them that you wish to extend your lease and state the price you are prepared to pay.
It is essential that the notice is correctly drafted to ensure that you do not temporarily lose your right to extend your lease. If errors are made, you may have to wait a year before you can serve a new notice.
Response from freeholder
The notice will give the freeholder at least two months to respond with a counter-notice. They also have 21 days to ask for additional information and the right to visit your property to carry out a valuation, provided they give you three days’ notice.
The freeholder may require you to pay a deposit of 10% of the price you offered for the lease extension.
Negotiation
The freeholder can agree to your terms or propose a different price. Your solicitor can negotiate on your behalf to try and agree on a premium. If an agreement can be reached, then completion can take place.
Tribunal application
If a price cannot be agreed upon, then after a minimum of two months of negotiations, you or your freeholder can apply to the First-tier Tribunal (Property Chamber). This is a court that specialises in property matters. An application must be made within six months of the date of the notice at the latest.
If your case reaches a hearing, the tribunal will consider all of the details, including the figures provided by the valuer and decide on the premium to be paid.
Drafting the lease
Your solicitor will draft the new lease, which will be similar to the previous lease. If you have used the formal lease extension process, the ground rent will be reduced to a negligible sum, referred to as a peppercorn, meaning you will no longer need to pay it. If you are extending your lease informally, your freeholder may still require you to pay ground rent.
Completion
Once the details have been agreed upon, completion can take place. If you are using the formal process and you have applied to the tribunal, the tribunal decision becomes final 28 days after it is issued, and you must complete the lease extension within two further months.
Completion involves your solicitor paying the balance of the premium to the freeholder, who will sign the new lease. Your solicitor will then register the extension at the Land Registry.
How much to extend a lease?
The valuation of a lease extension is complicated. Our lease extension solicitors will be happy to discuss the likely expenses with you, and you can also find out more in our blog, How much does it cost to extend a lease?
Contact our lease extension solicitors in Bristol today
If you are considering extending your lease and would like to discuss how to extend a leasehold property term or have any questions, please feel free to call us.
To find out more about our services, see our lease extension solicitors in Bristol page.
You can speak to one of our lease extension solicitors now by contacting your local Henriques Griffiths office in Bristol or Winterbourne.
Or use our simple enquiry form to ask a question or request a call back.
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