Your apartment is most likely located in a leasehold building in the center of London. Despite the fact that renting an apartment is costly, longer leases often raise a property’s value.
Does it make sense to prolong your leasehold, then? If so, how should you approach it? Fortunately, we have addressed a few of the frequently asked questions in this article, so don’t worry.
- 1 What Is a Leasehold?
- 2 Why Should My Lease Be Extended?
- 3 Who May Renew A Lease?
- 4 Can I Change My Lease?
- 5 When Should My Lease Be Renewed?
- 6 What Happens Once The Lease Expires?
- 7 What Is The Cost Of A Lease Extension?
- 8 Can You Get A Mortgage To Purchase A House On A Short Lease?
- 9 Can I Add The Costs Of A Lease Extension To My Current Mortgage?
- 10 What Is The Marriage Value?
- 11 When Is A Lease Extension Not Worth It?
- 12 What Is The Time Frame For A Lease Extension?
- 13 What Is The Procedure For Extending A Lease?
- 14 Can A Freeholder Decline To Grant A Lease Extension?
- 15 Summary
What Is a Leasehold?
The most typical type of apartment ownership in England is leasehold. It means that even though you own your apartment, the building is still leased to you for a set amount of time, and you are responsible for paying the owner’s ground rent.
The lease term gets shorter with time. If you don’t renew your lease, it will expire at zero and the freeholder will regain ownership of your apartment.
Once the fixed time has 90 years left, it is wise to investigate a leasehold extension. The lease is given to your purchaser when you decide to sell the apartment.
In this article, we have covered a number of crucial inquiries that you should make if you are thinking about purchasing a flat, including the length of the leasehold and other vital inquiries.
A lease extension extends the time you have until the property reverts to the landlord’s ownership by adding more years to the lease.
Why Should My Lease Be Extended?
Regardless of how content you are with your personal residence or investment property, you will eventually want to sell it.
The length of the lease will impact its worth when you decide to sell it.
As most lenders won’t give mortgages on buildings with leases of less than 60 years, a short lease would significantly reduce the value of the apartment and would make it hard for you to sell it to anybody other than a cash buyer.
They routinely seek higher interest rates for mortgages on homes whose leases end sooner than 70 years from now.
Who May Renew A Lease?
The good news is that as long as they have held the property for at least two years, flat owners are entitled to a 90-year extension to their lease at a fair market price under the 1993 Leasehold Reform, Housing & Urban Development Act.
The lease must also have been initially issued for a minimum of 21 years.
Can I Change My Lease?
Certain lease modifications, also referred to as “changing the lease,” are negotiable. First, talk to your landlord.
If you are unable to come to an agreement, you may be entitled to apply to a tribunal. If you need further guidance, contact Leasehold Advisory Service.
When Should My Lease Be Renewed?
It is advisable to apply for one if the lease still has less than 90 years left on it.
The primary defence for this is that your home’s worth will decrease with a shorter lease term.
If you’re willing to sell your home, a lengthy lease can also influence a potential buyer to choose your home over another one.
What Happens Once The Lease Expires?
When the lease expires, you are not required to vacate the premises. According to the law, a leaseholder is a tenant and a lease is a tenancy.
Until you or the landlord elect to terminate it, the tenancy will remain in effect under exactly the same conditions.
What Is The Cost Of A Lease Extension?
The number of years left on your lease as well as the value of the property will determine how much it will cost to extend it.
The extension’s actual cost, the associated professional fees, and the land registry fees make up the entire cost.
You will be responsible for paying the freeholder’s legal and valuation fees in addition to your own.
By estimating the financial loss the freeholder suffered as a result of granting the extension, the extension cost is determined.
This will rely on a number of factors, such as the ground rent, other lease conditions, and the market worth of the land.
It is impossible to estimate exactly what it will cost you to renew your lease because each unit will have different expenses based on its particular conditions.
To acquire a rough pricing estimate, you might wish to use an online lease extension calculator.
A flat worth £200,000 with 95 years left on the lease will probably cost £7,500 to fully renew.
If the lease is for 85 years, the fees might increase to £8,500, and if it’s only for 60 years, they could increase to $26,500.
If you extend a lease with less than 80 years left on it, the fee will significantly rise.
You will be required to give the freeholder half of the marriage value, which is the expected grain value, as a result.
Can You Get A Mortgage To Purchase A House On A Short Lease?
Cash buyers commonly purchase these homes since lenders may be reluctant to offer mortgages for those with less than 80 years left on the lease.
A private finance manager claims that the lending requirements are extremely lender-specific.
When a lease application is submitted, some lenders want it to still have 85 years left on it, while others only demand 75 or 70.
Some lenders will simply need that there be 50 years remaining on the lease when the mortgage term is through, so if there were 65 years left when you applied, you might theoretically choose a 15-year term.
A shorter term might reduce the amount you can borrow because the monthly payments would be higher.
Theoretically, it’s possible to buy a house fully and use a mortgage offer to pay for the lease extension, but Payne notes that bridging finance is another option.
The lease can be extended with the aid of this short-term financing option, and the bridging loan can then be repaid with a mortgage.
Compared to renting a home of a similar size for an extended period of time, this may be a more inexpensive choice for home ownership.
Can I Add The Costs Of A Lease Extension To My Current Mortgage?
You might be eligible to borrow more money from your mortgage after owning the property for at least two years in order to pay for a lease extension.
Wait until the end of the term if you have a fixed-term mortgage agreement, which is typically two or five years, to avoid paying early repayment penalties or having numerous mortgage products with various interest rates and fixed terms.
At all costs, stay away from that specific remortgaging horror.
However, if your rate is variable, you should always be able to increase your borrowing capacity or find a different lender.
What Is The Marriage Value?
Renewal costs will rise for leases with terms shorter than 80 years. In the event that such a lease is prolonged, the freeholder is entitled to both the extension fee and half of the rise in the property’s value.
This is referred to as the “marriage fee” because it combines two expenses.
Your lease’s freeholder might be hoping you’ll let it expire with 80 years left on it or fewer so they can benefit financially.
The time to act is now if your lease has about 83 years left to run.
When Is A Lease Extension Not Worth It?
Unless there are considerable ground rent savings or you have long-term intentions for the property, it might not be economical to renew your lease if it has more than 90 years left to run.
You might wish to allow the beneficiaries of your estate to decide whether to shorten the lease, though, if you’re elderly and don’t want to relocate at all. But make sure you are cognizant of the consequences.
If collective enfranchisement (when leaseholders act jointly to purchase the freehold) is anticipated, it might not be profitable to renew your lease on your own as waiting until after should make it less expensive and simpler.
Additionally, your application can be delayed if leaseholders submit a freehold purchase application while your request for an extension is still being reviewed.
What Is The Time Frame For A Lease Extension?
A lease extension may require at least 4 to 12 months. In fact, the application can take several months to complete because it calls for:
- Obtaining valuation guidance.
- Obtaining Section 42 Notice
- The freeholder providing a counter-notice in accordance with Section 45.
Moreover, you must give the freeholder at least two months to respond to the Section 42 Notice.
Negotiations have a further two months, and if a deal cannot be reached, the leasehold valuation tribunal may be consulted. The procedure in this scenario can go on for more than a year.
Also, make sure to give yourself plenty of time, especially if you intend to sell the property or are getting close to the 80-year threshold at which marital value becomes owing.
What Is The Procedure For Extending A Lease?
Below we have mentioned the procedure for extending a lease in detail:
- Verify that you are a qualified lessee. You had to have owned the property for two years or more and your first lease had to have been for more than 21 years.
- Make sure you have the resources necessary to finish the process, which can cost up to a few thousand pounds.
- Find out who owns the freehold and submit an application for a vesting order if no freeholder can be located.
- Choose a valuation surveyor who is well-versed in both leasehold and the neighborhood real estate market. They ought to be an ALEP and RICS member, if possible.
- Select a lawyer who is an ALEP member and has experience extending leases.
- If you want to extend your lease, decide whether you want to speak with your freeholder directly or have your surveyor or lawyer handle it.
- Make an informal offer if your freeholder is open to discussion and you can easily come to an agreement.
- You may now make a formal offer if your freeholder accepts your informal one. Your attorney will need to deliver a Section 42 Notice if they refuse your informal offer.
- You may now be asked by the freeholder to pay a deposit within 14 days. This will be equal to either 10% of the lease’s total cost or £250.
- The freeholder will provide a counter notice (Section 45), accepting, rejecting, or suggesting alternative conditions for your offer.
- You can ask for assistance from the Leasehold Advisory Service if no agreement is achieved.
- You can submit an application to the Leasehold Valuation Tribunal or First Tier Tribunal.
- The lease extension needs to be approved by your lender if you have a mortgage on the property.
- The lease extension will be signed off on by your attorney.
Can A Freeholder Decline To Grant A Lease Extension?
If you’ve held the apartment for more than two years, the Leasehold Reform Housing and Urban Development Act of 1993 states that the freeholder cannot refuse to extend the lease.
Be careful to confirm your eligibility and talk to your lawyer about it.
Extending a lease or purchasing the freehold is difficult and probably expensive.
Many types of Central London apartments, such as apartments and purpose-built or renovated apartments, may have varied lease terms set down by the freeholder.
You must consult with knowledgeable experts before moving forward. They could assist you in getting the ideal offer while also saving you from making a costly error.