There are two main types of property in England and Wales: freehold and leasehold. A freeholder owns the entire property – the land and any building that stands on it, as well as up to 152 metres of the airspace above the property. Leaseholders, meanwhile, do not own land and pay the freeholder ground rent.
Lease agreements vary in duration. Some can be valid for decades, or even centuries. In the past, the typical length of a lease was 99 years, though 125 years has become the norm in recent years. Some leases can last as long as 999 years. One important point to note is that it’s generally thought unwise to enter into any lease agreement that only has a remaining term of 80 years or less to run.
Leases shorter than this can pose a number of problems, not least of which will be the complications that arise if you are taking out a mortgage on, or remortgaging, the property. You may also find it difficult to sell a property on which the lease has fewer than 80 years to run. Additionally, it tends to cost more to extend a lease of 80 years or less.
Other common issues that arise for leaseholders include rising ground rents. The Competition and Markets Authority (CMA) has found strong evidence that leaseholders are often taken advantage of and have been known to sign contracts with unfair terms. One example is leases that include a clause stating that ground rents will double every ten years or less.
Contracts that include rising ground rents can not only make it difficult for leaseholders to keep the property, but can also prevent a sale of the property. Other issues include leaseholders being misled about the costs of converting a leasehold property into a freehold one. Some leaseholders are even unaware of the differences between a freehold and a leasehold from the outset and unwittingly sign up to agreements that are ultimately disadvantageous to them.
Cases like these illustrate the importance of hiring solicitors specialising in lease extensions. With expert legal advice from the outset, you can ensure that you do not get trapped in an unfair contract.
Extending A Lease
When a lease ends, the property reverts back to the landlord or freeholder. At this stage, this means that landlords are free to begin a lease with another party, and the original leaseholder will lose any rights and responsibilities they had to the property under the terms of the original lease. However, there is always the option for leaseholders to apply to extend the length of the lease if desired, and this can be done at almost any point during their occupancy of the property.
Extending a lease essentially means adding more years to the lease agreement. This can be beneficial to leaseholders in several ways.
If, for example, there are fewer than 80 years left on your lease, adding more years to it can increase the value of the property. A longer lease period, in turn, will make it easier for you to sell or re-mortgage the property.
Extending a lease can, therefore, offer both attractive and practical benefits to the leaseholder. But are you entitled to request a lease extension? The answer is yes, provided you have owned the property as leaseholder for at least two years; and the terms of the existing lease when granted was longer than 21 years.
Once you have been established as a qualified leaseholder under rights granted by the Leasehold Reform Housing and Urban Development Act 1993, you can extend your lease by 90 years, in addition to the number of years still remaining on the existing lease. If, for example, there are 60 years left on your lease, the extension means that the new lease will run for 150 years. What’s more, under that Act, the whole of the lease term must be at a peppercorn (i.e. minimal or no) rent.
Every case is different, so it’s strongly recommended that you take expert legal advice on your own circumstances. If the length of your lease has dropped below 90 years and is getting close to 80, then now is the time to start the lease extension process. A lease with fewer than 80 years left, as noted above, tends to be more expensive to extend. What’s more, if the lease is extended once it has fewer than 80 years to run, the freeholder becomes entitled to half of any increased value of the property.
Moreover, once a lease drops below 60 years, securing a mortgage can be next to impossible.
In return for the lease extension on such favourable terms to the tenant, the landlord is entitled to a “premium”, which is essentially a lump sum of money. There’s a formula is set out in the Act named above, which is a guide to calculating the size of this premium, but the exact figure will depend on negotiations with your landlord. However, these premiums typically reach upwards of £5,000.
The Basics Of The Lease Extension Process
The process of extending a lease can be quite straightforward, though there is a long list of things that you’ll have to do and watch out for. Once you have established that you are qualified to extend your lease, the next thing is to ensure you are able to cover the costs of doing so. You’ll need to hire a valuer and a solicitor, so your calculations should include valuers and lease extension solicitors’ costs as well.
At OGR Stock Denton, we can offer you expert legal advice at competitive prices, while ensuring you pay no more than you should for extending the lease on your property.
Valuers and leasehold extension solicitors will serve as your advisers during the lease extension process. Your solicitor in particular will be tasked with gathering all the pertinent documentation and information required. They will not only serve the tenant’s notice on your landlord but also assist you throughout the legal process of extending your lease.
Once your advisers are in place, you are now ready to proceed to the next steps. This includes securing a valuation of the property, which involves assessing the premium you will pay to your landlord. The process of extending a lease can be lengthy and drawn-out, and it is likely that a lot of this time will be spent in negotiation with your landlord on the terms of the new lease.
Your landlord will then have to serve you with a counter-notice. Once this is done, you or your landlord will have between two and six months to apply to the tribunal for an independent decision. As an example of the additional costs that you may be required to pay during the process, the tribunal’s application fee is £100, while the hearing fee is £200; so it is well worth factoring these into your budget, along with your lease extension solicitors’ fees.
After 28 days, the tribunal’s decision on the matter will become final. You may, if the tribunal allows, have a right of appeal to the Upper Tribunal (Lands Chamber), but if not, then you and your landlord then have two months to enter into a new lease.
This is only a very broad-brush outline of the way the procedure can run. There are many complexities and additional steps that your solicitor may recommend along the way. It’s also possible that that you and your landlord could enter negotiations to extend the lease without recourse to the formal process, though this often leaves you at a disadvantage.
That’s because the landlord is free to try and set their own terms, such as increasing the ground rent or refusing to extend the lease altogether. Either way, it is critical you obtain the best legal advice available.
OGR Stock Denton can find the right solicitor for your lease extension needs, ensuring that you’ll have proper representation during the entire process. Because leaseholders can be in a particularly vulnerable position, it’s essential that you invest in protecting yourself and your interests.
Our firm has decades of experience in handling various legal matters, including leaseholds. If you need a solicitor for lease extension, you can call us on 020 8349 0321 or email us here.