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    Lease Extensions – Six Top Tips for Leasehold Flat Owners

    The lease extension process can seem confusing, so property experts John Midgley and Ben Gardner have set out six useful tips to help you get ahead.

    1. Check your lease term

    The length of term remaining on the lease is crucial because, generally, as the lease term gets shorter, the value of the property decreases, and the cost of a Lease Extension increases.

    If your remaining lease term is approaching 80 years, the cost of a Lease Extension will increase. This is because the ‘marriage value’ factor is then taken into account, which increases the cost of a Lease Extension.

    It can also be more difficult to find a mortgage for a property with a shorter lease term, and therefore, it is important that you act before your lease reaches the 80 year mark, or as soon as possible if your lease already has less than 80 years remaining.

    2. Lease extension claim

    It is important to check if you are entitled to pursue a lease extension claim. It is stated that you must have been the registered owner of your flat for at least two years; don’t worry, if you don’t know, we are able to check this for you.

    You should then obtain a valuation figure for the anticipated cost of the Lease Extension to allow you to budget for it. You should rely on professional advice when obtaining a Lease Extension valuation. As solicitors, we are unable to provide any valuation advice, but we have access to a wide network of highly qualified valuers who will be able to assist.

    Your valuer will advise you on the appropriate opening offer to make to the landlord, and provide you with a guide as to what the payable price is ultimately likely to be.

    3. Inside or Outside ‘the Act’?

    ‘The Act’ is The Leasehold Reform Housing and Urban Development Act 1993. The Act provides most residential Leaseholders (who have owned their flat for at least two years) with a statutory right to obtain a Lease Extension. If you qualify, then you will be able to obtain a Lease Extension for 90 years, on top of your remaining lease term, and your ground rent will become a ‘peppercorn’ (i.e. nil).

    ‘Inside the Act’ means that you will serve Statutory Notice on the Freeholder, and you will pursue your claim for a Lease Extension via the Act. By proceeding Inside the Act, your Lease Extension is guaranteed on set terms, which is one of the main advantages for proceeding via this route.

    ‘Outside the Act’ means that you will not proceed via the statutory process, but via separate negotiation with the Freeholder. This process is therefore subject to negotiation and, most importantly, there is no statutory obligation on the Freeholder to grant a Lease Extension, nor to agree to any specific terms Outside the Act. It is often quicker to proceed Outside the Act if terms have been agreed between the parties and parties do not wish to proceed via the (often lengthier) statutory process. However, great care must be taken before agreeing terms Outside the Act, as you may find that you end up with more onerous lease terms – including, quite possibly, a higher and rising ground rent – for much the same price as you would have paid if you had proceeded Inside the Act.

    4. Buying a property with a short lease, and cannot wait two years before applying for a lease extension

    As a general rule, many mortgage lenders require lease terms of 80+ years remaining before they agree to lend. This could be a problem if the property that you want to buy has a shorter lease term, approximately 80 years or less, and the Seller is not willing to obtain a Lease Extension before you proceed.

    The good news is that you should still be able proceed with the purchase, provided you are willing to deal with the Lease Extension process yourself following completion.

    The Seller would have to sign and serve the statutory notice and, on completion, would have to transfer the benefit of the lease extension claim to you, allowing you to avoid waiting two years to start the claim in your own right.

    This can be a minefield if not done properly, so it is important that you get legal advice on the formal documents required, otherwise you risk the transfer of the claim being invalid. In this case, you would have to wait for two years ownership rights to materialise, and there is a risk that the lease extension will be more expensive at that stage.

    5. Budgeting for ‘other costs’

    If you proceed Inside the Act, then you will have to pay the Freeholder’s reasonable legal and valuation costs and disbursements. These costs would be on top of your own fees and the Lease Extension premium, so remember to budget accordingly!

    If you proceed Outside the Act, whilst there is no legal obligation for you to pay the Freeholder’s costs (as terms are subject to negotiation), in many cases, the freeholder will seek those costs upfront regardless of whether you can agree the price or the terms of the lease.

    6. Patience is key

    The Lease Extension time frame depends on several factors; it is partially governed by a statutory timetable; it can be dependent on how negotiations are progressing; and, sometimes, it simply depends on a client’s needs.

    If you proceed Inside the Act, then the process could take around 12 to 18 months to conclude. However, most Lease Extensions generally complete within around 8 months.

    Broadly speaking, if terms are agreed Outside the Act, it could be quicker, as only the conveyancing formalities need to be completed.

    Should you have any queries regarding lease extensions, please contact Seddons Head of Leasehold Enfranchisement, John Midgley, who will be happy to assist on 020 7725 8068 or john.midgley@seddons.co.uk.

    Disclaimer; the above article is only a short summary and does not constitute legal advice, and reflects the position as at 23 March 2020.

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