Our expertise is recognised by our membership of the Association of Leasehold Enfranchisement Practitioners(ALEP), and as such, we get a lot of people asking us questions about extending the leases on their residential properties, especially as the rules have changed in recent years. So, here are the answers to some common FAQs on lease extensions.
What is a leasehold property?
Leasehold properties are a common type of property in England & Wales, especially in the form of flats or apartments. A leasehold property is owned for a fixed period of years, but the buyer of the property does not own the land it is built on, which remains owned by the landlord or freeholder. The owner of the property, known as a leaseholder or tenant (even if they have bought the property and are not renting), has a long-term tenancy agreement with the freeholder that outlines their rights and responsibilities.
Why would I want to extend my lease on a leasehold property?
If you own a leasehold property, the term of your lease decreases each year. Many mortgage lenders require at least 65 years left before they will lend on the property, and if you intend to sell your property, it may be harder to do so if you have fewer than 70 years remaining. If, for example, your lease currently has 70 years remaining, a statutory lease extension would increase it to 160 years, significantly enhancing the property’s value and market appeal.
Am I allowed to extend my lease?
An owner of a residential leasehold property is entitled to a lease extension if their remaining lease term exceeds 21 years. Effective from 31st January 2025, the requirement for leaseholders to have been the registered owner of a property for 2 years has been abolished, so all leaseholders are now eligible to apply for a lease extension from the first day of ownership.
Does a landlord/freeholder have to extend a lease?
Yes, if you are extending under the statutory procedure. A landlord can only refuse to extent your lease if you don’t qualify under the statute.
If you are agreeing an informal lease extension with your landlord, they are not obliged to grant you a new lease, but you will find that most landlords are keen to discuss terms. Following the Leasehold Reform (Ground Rent) Act 2022, any lease extension agreed informally cannot reserve a new ground pattern. Therefore, any agreement on ground rent must either retain the ground rent pattern granted under the current lease with a peppercorn rent for any extended term or reserve a peppercorn rent from completion of the lease extension.
How does the lease extension process work?
If you are eligible for a lease extension, you can enforce your legal right by serving a notice on your landlord to confirm the terms of your proposed lease extension or agree on terms directly without the need for a notice to be served. Your landlord is entitled to an open market premium for the lease extension, and you should instruct a suitably qualified surveyor to conduct a valuation in accordance with the statutory formula.
It may be a good idea to informally approach your landlord to ask about the terms on which they would be prepared to offer you a lease extension before a notice is given. If your informal negotiations with your landlord are unsuccessful, a notice can be served on your landlord to confirm the premium you are willing to pay. Once your landlord has received a notice, they must respond in one of the following ways: –
- Admit that you are entitled to a lease extension. Your landlord can either accept all of your proposals in the notice, including the premium, or respond with their own proposals; or
- Dispute your proposal for the lease extension; or
- State they intend to redevelop the property.
If your landlord fails to respond to your notice, you can make an application to the Leasehold Valuation Tribunal, which can make an order requiring the landlord to grant the lease. The Act sets out a timetable by detailing how long the landlord has to reply.
Can I extend my lease to 999 years?
Lease extensions to 999 years are usually reserved for leaseholders who have purchased the freehold of their building and therefore grant themselves a ‘virtual freehold’. If you’re looking to investigate the option of collective enfranchisement, we can also advise in this respect. In most cases, owners of leasehold flats add 90 years to the existing lease term.
How long does it take to extend a lease?
The process of extending a lease can vary anywhere from 3 months to 12 months, depending on a variety of factors but this will take longer if the matter is referred to the First Tier Tribunal. We will discuss your specific circumstances with you.
How much does it cost to extend a lease?
You will be required to pay a premium for the lease extension, and you will also be responsible for the legal and valuation fees incurred by your landlord. THP Solicitors fees for acting for you as a leaseholder in extending your lease will depend upon the route you take. We will discuss those fees with you directly and provide a detailed quote in advance of any work.
What is marriage value?
Another consideration is that when a leaseholder is granted a lease extension, the value of the landlord’s interest will usually decrease, and the value of the tenant’s interest will increase. This increase in the total value of the two interests is known as ‘marriage value’. The longer the unexpired residue of the existing lease, the lower the marriage value will be.
If the unexpired residue of the existing lease is 80 years or less at the date of the tenant’s notice requesting a lease extension, then half of the marriage value is payable to the landlord. If the unexpired residue is more than 80 years, then no marriage value is payable. It is therefore more cost-effective to extend your lease in advance under the current legislation.
The government has announced plans to abolish marriage value under the Leasehold and Freehold Reform Act 2024, but this reform has still not been implemented, and there is no set date. When/if it does come into force, it should remove the extra cost leaseholders face for extensions when their lease drops below 80 years, making it cheaper and easier to extend leases.
How our lease extension experts can help
If you own a leasehold property, or are looking at buying one, we can give you practical legal advice regarding lease extensions, the process, and the costs involved. Please contact Karen Brown on T: 0118 975 6622, or complete our website form below with your details, and we will get back to you.