21 May 2021 by Angelina Arora

Lease extensions benefit both buyers and sellers

If you are considering buying or selling a leasehold property with a short lease length, you should think about extending the lease at the same time.  A statutory lease extension enables you to extend the lease by an additional 90 years on top of the existing term.

In order to qualify for a statutory lease extension, you must have owned the property for two years. It is clear that a buyer would not fulfil this criterion. To overcome this hurdle, the seller can serve a “Section 42 Notice” on the freeholder and then use a Deed of Assignment to assign the benefit of this notice, along with the right to extend, to the buyer.

The usual procedure is that the seller would serve the notice on the freeholder on or after exchange of contracts. Following this, the Deed of Assignment would be entered into on completion of the sale, at which point the buyer would have the right to continue the lease extension claim going forward.

Benefits for a seller
  • You can increase the number of prospective buyers. If you are selling under a short lease without arranging a lease extension, it may only be possible to sell to a cash buyer because a short lease might not satisfy a lender’s requirements. Extending the lease, however, improves the ability of buyers to obtain finance to purchase the property.
  • Subject to what can be agreed with the buyer, you would not usually be responsible for paying any costs associated with the lease extension claim because the buyer would have requested the service of the notice.
Benefits for a buyer
  • You would not need to wait two years before qualifying for a statutory lease extension, by which point the premium payable for the lease extension would have increased.
  • As most lenders require the lease term to be over 80 years, you will have removed a potential barrier to obtaining a mortgage.
  • If the lease has 80 years or more remaining, you would avoid the addition of “marriage value” to the premium, so your overall costs may be lower.

For advice on lease extensions and sales, please contact any member of our Real Estate Dispute Resolution and Enfranchisement team.

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