9 April 2018
Don’t Leave It Too Late To Extend Your Lease
If you own a lease to your home, rather than the freehold, then at some point your ownership will come to an end. At some point in future – unless you sell it – the lease will expire, and your home will go back to the freeholder. However, the good news is that the lease can be extended.
More than 4 million homes in the UK are leasehold. Most of these homes are flats, and for many of them the lease is for 125 years. If the lease began some decades ago – during which time the flat may have been bought and sold many times – then the period remaining on the lease may be fairly short. The shorter the period remaining, the less valuable the lease. Some mortgage lenders will not lend on homes with under 70 years remaining on the lease, and so a home with only a short term remaining can be difficult to sell.
If you have owned your home for 2 years or more, you have a right to extend the lease by 90 years. This right comes from the Leasehold Reform Housing and Urban Development Act 1993. While this is a welcome benefit to leaseholders, the sting in the tail is that not only do you have to pay the freeholder landlord a ‘premium’, you must pay all your own and their legal costs as well.
To start the process, you serve formal notice on the landlord that you want to extend the lease (called a “Section 42 notice”), with a suggested valuation of the premium. This valuation should be prepared by a surveyor. The freeholder will appoint then their own surveyor to value the premium, and you negotiate an agreed figure.
The premium you will pay the landlord to extend the lease can amount to several thousand pounds, plus the legal costs. But the way to look at it is that you will increase the value of your home substantially. Many people who receive a leasehold home in a will often apply to extend the lease before selling the property, to maximise the value of their inheritance. Whatever the reason for extending a lease, don’t delay starting the process: the shorter the term remaining on the lease, the higher the premium will be.