In this article we summarise the costs and benefits of extending your lease, as well as outlining the stages in the process and introducing the concept of marriage value.
There are many important benefits of extending your lease:
- Add an extra 90 years to your lease
- Increase the market value of your flat
- Make your flat more appealing to buyers
- Never pay ground rent again (peppercorn ground rent)
- Quicker than purchasing the freehold
The eligibility criteria for a statutory lease extension are as follows:
- You must have owned your property for at least two years
- You must be the owner of a long lease, originally granted for at least 21 year
If you meet these requirements, you are entitled to compel your landlord to grant you a lease extension under the Leasehold Reform and Urban Development Act 1993.
The cost of extending the lease can be broken down into five simple stages:
- Your solicitors’ fees
- Your valuers’ fees
- Disbursements (expenses)
- Lease extension premium (paid to the landlord)
- Your landlord’s legal and surveyor costs
Although you’ll need a formal valuation from a surveyor, you may calculate an approximate figure for the value of your premium by using a lease extension calculator.
The complexities of the statutory lease extension process can be simplified as follows:
- Instruct a surveyor and receive valuation report
- Instruct a solicitor
- Solicitor sends Section 42 Notice (Notice of Claim / Offer Notice) to landlord
- Landlord obtains valuation report and requests deposit
- Landlord sends Section 45 Notice (Counter Notice) before the deadline
- Surveyors begin negotiations and solicitors arrange terms of the lease
- Apply to the First Tier Tribunal (FTT) is an agreement can’t be reached
- Landlord sends engrossments (final copy of new lease) and completion statement
- You sign the New Lease Deed and transfer funds
- Appeal to County Court if either side fails to fulfill their obligations
There is effectively a deadline to affordable lease extensions. Once your lease runs below 80 years, it will suddenly become considerably more expensive to extend.
This is because marriage value, meaning that half the increase in the value of your interest in the property as a result of the lease extension is added to the premium, only applies to leases with fewer than 80 years remaining. It is therefore strongly advisable to extend the lease before marriage value becomes a factor.
The valuation date is frozen when you serve your notice to start the lease extension process, so you will be protected from the lease value diminishing as soon as the statutory process commences. The sooner you start the process, the cheaper your lease extension will be. And it’s imperative not to let the lease run below 80 years.