A lease extension is not necessarily at the top of a home owner’s to-do list, but it can prove to be a shrewd step to take. Here, Steve Neale, a Partner in our Commercial Property department, looks at the benefits of doing so in relation to flats.
First and foremost, the key benefit of extending a lease relates to the marketability of the property. If you have extended the lease prior to placing it on the market, its value will be enhanced or at least maintained. It can be difficult to sell if only a short lease remains, as potential buyers find it impacts upon their ability to obtain a mortgage.
Providing you have owned the property for at least two years and the lease of your property was originally granted for a term of 21 years or more , you have a statutory right to extend the lease following the set procedure in accordance with the Leasehold Reform Housing and Urban Development Act 1993 (LRHUDA). You will need to pay a premium to the landlord for doing so (and you can be asked to cover their ‘reasonable’ legal costs.) There is also nothing preventing you from making an informal approach outside of the LRHUDA to the Landlord at any time during your ownership.
Your solicitor will be able to guide you in terms of the premium; there is guidance within the LRHUDA but a valuer will prepare a formal valuation report to send to the landlord. Solicitors have good working relationships with valuers and so will be able to recommend one that they know and trust.
Whilst it is referred to as a “Lease Extension”, under the LRHUDA, owners of flats are actually granted a new lease with a term of 90 years (plus any remaining years at the time of the extension) – giving you peace of mind during your ownership and a solid starting point if you sell. The rent is also automatically reduced to a peppercorn (which in reality is not collected!)
It is undoubtedly a complex, technical area of law, with a strictly defined procedure. Your solicitor will check your eligibility, prepare and serve notice on the landlord and deal with the granting of the new Lease to you. Following the service of the Notice a period of negotiation may arise but they will also manage payment of the 10% deposit which is payable to the Landlord under the Act.
There are consequences for an incorrectly followed procedure; an application can be declared void which prevents any new applications being made for a further 12 months. Using an expert solicitor means that you do not need to worry about errors in procedure holding things up.
We have a wealth of experience in successfully completing lease extensions for clients. If you wish to start the process, or have any questions concerning lease extensions, please call Steve Neale on 0113 284 5019.