17 October 2014 by

Don’t delay extend today…

A leasehold property gradually loses its value as the lease term decreases, but the cost of extending the lease actually increases with each year that goes by. Once the term falls below the 80-year threshold, you are required to pay a “marriage value” – an additional premium for enhancing the value of your leasehold property. Properties with 80 years or less are also generally much more difficult to mortgage and on re-sale it is likely that a purchaser will look for a lease extension to safeguard their future security.

It therefore follows that the sooner you extend the lease, the cheaper it will be – so how do you extend?

A long lease, defined in law as over 21 years, can be extended under statute or voluntarily.  The method chosen will depend largely on your financial circumstances and the speed in which you need to extend the lease.

Under the statutory route, your lease can be extended for 90 years, in addition to what remains on the current lease. If, for example, you have an unexpired lease of 60 years, the grant of a new lease will increase the overall term to 150 years. Your ground rent reduces to zero and you will have the opportunity to modernise your lease if needed (e.g. to amend defective terms).

Alternatively, if your landlord is agreeable you may be in a position to extend your lease voluntarily. Whilst you may be offered a lower premium, this reduced price is likely to reflect that the lease is to be granted for a shorter term. Your ground rent is also likely to increase immediately and further incremental increases are commonplace.   It is often the case that the lessee’s ground rent demands under a voluntary lease extension can increase from £50 to £200 annually.  Over a five year period, this would equate to paying your landlord an additional £1,000, as opposed to nothing under the statutory route.

Whilst every lease extension case is different, we generally always advise clients to extend their lease by reference to statute.   This is because, if the qualifying criteria are met, the landlord is obliged to grant a new lease and it takes away the uncertainty surrounding the terms of the new lease.  Once notice to extend the lease (“initial notice”) has been served, the landlord is obliged to deal with the extension within the strict timeframes set out in the Act.

A voluntary lease extension can be much quicker than one granted under statute, but under the statutory regime there are controls built into the framework to protect the rights of the lessee.  If completion of a voluntary extension is delayed or if the offer is withdrawn then there is little, if indeed anything at all, that the lessee can do to remedy the situation.  This means that valuable time has been lost and unnecessary expense incurred.

When considering which option to choose, a cost-benefit analysis should be taken – i.e. what is the total cost of both options in the long and short term.   Although the initial cost of a voluntary lease extension is less, it will involve additional costs such as payment of the premium, your legal costs, landlord’s costs, then ongoing ground rent payments to the landlord and possibly valuation fees.   Statutory claims carry the protection of the FTT (First Tier Property Tribunal) meaning that if costs are considered excessive these can be challenged independently of premium.

We would always recommend making some initial enquiries of your landlord to get a feel of whether he or she would be willing to offer the extension on a voluntary basis. If not, we would advise that you immediately consider the statutory route. Even if the landlord offers to extend the lease on a voluntary basis, given that the landlord has effectively provided what he or she considers the value of the extension to be, the landlord would be unable to later argue that you should pay a higher premium than the initial offer that was made.

If you would like to know more about extending your lease and the options available contact us on 0207 288 4700 or email us at info@boltburdon.co.uk

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