Ever wonder how the British aristocracy retain their vast wealth? It’s thanks to leaseholds, a form of property ownership that dates back to the middle ages, allowing medieval tenants to use a lord’s land for agricultural purposes in exchange for rent. England is one of the few countries in the world that still retain this feudal system of land ownership and Eastbourne, and the surrounding area have a large number of leaseholds.
Today, if you own a leasehold property, you own your flat for the life of the lease. However, if your lease expires, your landlord (the person or company who owns the freehold of the property) can take back possession. This applies even if you have been paying a mortgage.
The Leasehold Reform, Housing and Urban Development Act 1993 (“the Act”) provides leaseholders of flats with the right to extend their lease, in most cases for a further 90 years, at a fair market price. The process can be complex; therefore, it is crucial to instruct an experienced solicitor to manage the lease extension process for you.
Below are five key tips for extending your lease.
One – Remember the magic 80-year mark
If you own a leasehold flat, the number of ‘80’ years should be seared into your brain. Landlords pray that leaseholders let the length of their lease drop below 80 years because at that point they can rake in money for nothing. This is because to extend a lease with less than 80 years to run, you will pay 50% of the ‘marriage value’ of the property plus the usual cost of extending.
The marriage value (or marriage fee as it is sometimes known), is the overall increase in the market value of the property gained through extending the lease. In the affluent Southeast, the marriage value can amount to tens of thousands of pounds.
Top Tip – If you are purchasing a leasehold flat and the length of the lease is less than 80 years, alarm bells should be ringing louder than Big Ben. Regardless of how convincingly the estate agent claims “extending the lease will be quick and easy,” talk to a solicitor before making an offer.
If the length of your lease drops below 80 years, the value of your property may also fall. It is also near on impossible to obtain a mortgage on a lease with 60 years or less to run (and if you do get finance, the interest rate is likely to make your eyes water).
So, if your lease has around 85 to 83 years left to run, start making enquiries regarding extending. You must have owned your property for two years before you can make an application to extend the lease.
Two – Budget for ALL the costs of extending your lease
Be careful to calculate the additional costs on top of extending the lease via the formal statutory route under the Act. These may include:
- Legal costs
- Valuation costs (undertaken by a surveyor)
- Negotiation costs (typically undertaken by the surveyor)
- Land Registry fees
If you initiate the process of a lease extension, it is highly likely you will be required to pay the freeholder’s legal and valuation costs (this does not include negotiation or tribunal costs, which they would have to pay themselves).
Top tip – it may be tempting to try and save costs on solicitor’s fees and informally try and negotiate an extension with the landlord. Don’t! The freeholder is likely to instruct a highly experienced solicitor who can make changes to the small print of your agreement at the stroke of a key. This could leave you being charged onerous ground rent, leaving your home virtually unsellable, and/or paying thousands more for your lease extension than is required.
Three – Understand the lease extension process
To extend your lease under the Act the following process should be followed:
- Inform the freeholder you will be pursuing the statutory route to extend your lease.
- Appoint an experienced solicitor.
- Find a valuation surveyor with expertise in leasehold extension legislation and the local property market.
- Make a formal offer on the amount you are prepared to pay to extend the lease (this is known as the Tenant’s Notice and your solicitor will take care of this).
- Pay the deposit if one is required by the landlord. This will either be £250, or 10% of the lease cost in the tenants’ notice if that exceeds £250.
- Negotiate if the freeholder does not accept your initial offer. If you cannot reach an agreement, you can apply to the First Tier Tribunal (Property Chamber) to rule on how much the lease extension will cost. It is relatively uncommon for lease extensions to go to a tribunal and a good solicitor will take every step possible to avoid negotiations ending in a deadlock.
- Once the terms of the lease extension have been agreed the lease extension document will be agreed between the solicitors and signed by both parties. On completion the premium and Landlord’s costs will be paid over and the lease extension is then completed and registered at the Land Registry.
Final words
Without expert legal advice, there are many opportunities for a lease extension to end badly for the leaseholder. Following the statutory route may require more investment in the short term, but it can save you thousands in the long-run.
Please note, this article does not constitute legal advice.
Hart Reade Solicitors are a full-service law firm with offices in offices in Eastbourne, Hailsham, Polegate and Meads. We hold a both a Lexcel and Conveyancing Quality Accreditation from the Law Society of England and Wales. To make an appointment with one of our conveyancing solicitors about your lease extension, please phone our office on 01323 727 321 or use the enquiry form below.
Please note, this article does not constitute legal advice.
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Please note the above is for information purposes only and is intended to be a short summary. It should not be treated as a comprehensive guide and should not be acted on without qualified legal advice.
