Extending your lease can add value to your property, but it can be a complicated and (sometimes) costly process.
But in an exciting bit of news, the government unveiled reforms this year to make it ‘easier, faster, fairer and cheaper’ for the 4.5 million leaseholders in England and Wales to obtain lease extensions up to 990 years at zero ground rent.
The timeframe for any changes have yet to be clarified, but if these proposals are codified into law they could save leaseholders thousands of pounds and offer long-term property reassurance.
(Note: this information pertains to England and Wales. The law is slightly different in Northern Ireland and Scotland.)
Leaseholding is the most common form of flat ownership. It’s also not unusual for newbuild houses.
To own a leasehold on a property is to essentially rent that space -- but not the building itself -- for a fixed amount of time. At the end of that period -- say, 90 years -- the property reverts to the freeholder.
The rules on lease extensions, as noted, are in flux. But at the time of writing, any leaseholder who has owned the property for at least two years can demand a lease extension up to 90 years from the freeholder.
If you haven’t yet owned the property for two years, then you can still enter into an informal (‘non-statutory’) agreement with the freeholder if they’ll agree to it. If the freeholder agrees, then both parties will need to negotiate the terms. Be aware, however, that informal agreements tend to offer fewer leaseholder protections than formal ones.
Regardless, if you’re considering extending your lease, be sure to obtain good legal advice.
Most property experts recommend extending your lease once the fixed period falls below 90 years.
But, why bother, when few leaseholders will live that long? The main benefits include:
It’s true, however, that lease extensions can be complicated and often expensive, so they’re not for everyone.
You may decide against going the lease extension route if:
Generally, the shorter the lease, the more expensive it is to extend.
So it’s critical to act quickly to ensure your lease doesn’t fall below what experts say is the critical 80-year mark.
Lease extensions grow very expensive once your lease term falls to 80 years or less because various fees kick in on top of the usual price of an extension. Every year below 80 can potentially cost leaseholders hundreds -- perhaps thousands -- of pounds.
Mortgage rates also begin to increase significantly once leases are closer to around 70 years. Leaseholds under 60 years are virtually impossible to mortgage, which makes them extremely difficult to sell, or remortgage if you’re planning to stay put.
By the time the lease falls to zero years, the property is nearly without value because the entire property will then just revert to the freeholder anyway.
The costs of lease extensions vary considerably but you should plan for at least a couple thousand pounds to get it done.
The actual costs depend on a number of variables, including:
Leaseholders considering extensions should also factor in the other fees that kick in, such as:
Although the steps are pretty straightforward, they can take some time to get through.
The basic four-step process could be as follows:
The whole process should take at least a few months, though it could extend to a year (or perhaps longer).
As with all property matters, having good legal representation can speed this process up considerably.
This will be the right decision for some people, but it depends on a few factors.
Namely, buying a freehold can frequently be an expensive and frustratingly complicated legal process. Be certain you have the money and patience to see it through.
It’s even more complicated if your property is located, for instance, in a building divided into flats. In that case, you’ll need to persuade more than half of all leaseholders to acquiesce to the sale, which could be tricky.
According to some analysts, if the current lease extension proposals are made into law, they would constitute the most significant reform in the leasehold system in four decades.
In addition to the measures mentioned above, other significant changes include:
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