Steathers has a very active and well known property law team and one of our specialisms is advising clients on extending leases and buying freeholds.
The law recognises that the decreasing term of a lease makes it difficult for leaseholders to sell their residential properties. There are many thousands of long leaseholds, especially in London, where many houses have historically been converted to flats some years ago, and where the lease term has run down to below 90 years.
Many mortgage lenders are now insisting that such leases are extended before they will agree to lend mortgage monies to fund a purchase of a flat with a perceived unacceptably short lease.
Residential long leaseholders have a statutory right, in certain circumstances, to either purchase the freehold or to extend the lease at a reasonable price. This is known as leasehold enfranchisement.
5 key aspects of lease extensions
- Extending your lease before it has less than 80 years left is a far better option for most owners, because it will be less expensive than if the lease has less than 80 years remaining. Once a lease has less than 80 years to run, the freeholder will be entitled to a higher premium to extend. Under the statutory process (see below) this extra amount is worked out using a complex formula known as marriage value;
- Whilst most lease extensions start with the leasehold owner serving formal notice on the freeholder using the statutory process, many lease extension premiums are in reality agreed at a level reached by negotiation. So, with most lease extensions, the statutory process does not need to be followed all the way through. The main reason for this is that surveyors can generally work out a fairly narrow difference between what the freeholder can demand and the best amount the leaseholder can expect to pay. There is rarely any good reason for a freeholder to even try to demand an excessively high premium to extend, and to do so would be risky, as the freeholder could be ordered to pay costs if the matter ends up being decided by the Leasehold Tribunal;
- Some flat owners are unaware of the need to extend and only become aware when marketing their flat for sale. A property owner must have been registered as the legal proprietor at the Land Registry for 2 years before being eligible to use the statutory lease extension process. It may be possible for the current owner of a property to start the statutory process by serving the necessary notice and then to legally transfer (assign) the benefit of the notice to a new owner. In this scenario, there is often a discussion about adjustments to agreed sale price bearing in mind the buyer will ultimately pay for the extension.
- In many cases, flat owners, in addition to having the long leasehold interest, will also have a share of the freehold title. As all leaseholders ought to have the same interest in extending their leases, in this scenario, it is often possible to reach agreement that lease extensions will be for no premium.
- Most lease extensions result in a new lease term of 125 years with no increase in ground rent. Occasionally, freeholders do seek to negotiate on either the length of the extension or an increased ground rent.
- Lease extensions can be complicated by the fact that the owner of the freehold may be missing or absent. When houses are converted, the person who converted the house to flats will have extracted almost all the value by selling the flats on long leases. The freehold only has a residual value and some previous owners who converted properties many years ago may have died, moved with no known address or have completely forgotten about the freehold. In the situation of an absent freeholder, additional steps will be needed, including applying to court, which is both time consuming and costly.
How long does it take to extend a lease?
The timescale involved from start to finish invariably depends upon the parties and their willingness to accept a fair and reasonable price. It can take a minimum of 6 months even if the parties are keen to reach a reasonable agreement.
Lease extension legal fees
We provide experienced lease extension advice. Our fees are tailored to recognise the different options and likely outcomes. In many cases an extension can be agreed after the initial notices have been prepared and served and a premium negotiated. The work then is to deal with the formalities for the new lease term and registration. If the matter becomes protracted and the freeholder will not agree without proceeding down the formal statutory process, we ensure that you are fully aware of your legal costs at every stage.
If you need solicitors in London who provide expert, competitively priced lease extension advice and services, we are an excellent choice. Please do get in contact.