Lease extensions are a common feature in London where there are many thousands of flats in both purpose built blocks and converted houses held on long leases.
Why do long leasehold flat leases need to be extended?
Historically, flats were mainly sold off on 99 or 125 year leases. Leases get shorter with each year that passes. Even though the value of the freehold residual interest will typically be low because there is a statutory right for long leaseholders to keep extending their leases (so the property never reverts back to the freeholder), it can be a hassle and expense to extend your lease.
One of the main reasons why leasehold flat leases more commonly now need to be extended is because the policies of mortgage lenders have changed so that whilst previously a lease length of twice the mortgage length (so 50-60 years usually) was acceptable, now most mortgage lenders will only lend where the remaining time on a lease is at least 85-90 years.
The most common reasons for extending your long lease are in preparation for selling your flat, or if you want to (re) mortgage your flat.
Statutory right to extend long residential lease
The good news is that long leaseholders have a statutory right to extend their leases by 90 years and the premium to extend the lease, is protected by the statutory formula for how the premium should be valued, which if necessary, can be enforced in the Leasehold Valuation tribunal.
One important requirement under the legislation is that the right to extend a residential long lease only applies if the owner has been the registered owner at the Land Registry for at least 2 years.
If the lease is less than 85-90 years, the solution is typically for the seller, who should have the 2 year required ownership, to serve the statutory notice to claim the lease extension and then to assign (transfer) the legal benefit of that notice to the buyer.
Non-statutory or informal lease extension
In reality, most leases are extended by consent because in most cases the freeholder cannot simply “name its price” for the premium to be paid to extend. A typical approach is to serve the statutory notice to start the statutory process whilst at the same time negotiating with the freeholder.
Thinking that you can do a quick deal with the freeholder without serving the preliminary notice or where surveyors negotiate over applying the parameters in the statutory premium formula can result in problems for you, especially where you need to proceed quickly if you are looking to sell the flat.
Share of freehold lease extension
In many cases, flats in converted houses involve the leasehold owners also having a share of the freehold. This often means that all the leaseholders can agree to extend all the leases (and usually to 999 years) without having to pay a premium. It is surprisingly common to find that leaseholders who have bought the freehold have not extended their leases. If you find yourself in this situation, we can help solve it for you.
The premium to extend – what’s marriage value?
The key reason why most leases are extended when there is still more than 80 years remaining is marriage value. The extension of 90 years on a lease generally increases the value of a flat considerably. Roughly speaking, that increase is married to the existing value by a technical calculation formula under the existing statutory process. If a lease has more than 80 years left to run, then marriage value is not taken into account in the premium calculation.
The result is that the premium can increase a lot if the lease the has less than 80 years left and the premium increases more and more as the lease gets shorter. In general terms, the shorter the remaining term of the lease, the more expensive it is to extend.
Will marriage value still apply?
The Leasehold and Freehold Reform Bill 2023-2024 is a draft Bill on leasehold, reform which proposes ( amongst other things) to abolish marriage value which, if and when enacted should mean that for those flats leases which have less than 80 years to run, it will be cheaper to extend their leases. I
However, there may also be adjustments to deferment and capitalisation rates (which are parts of the calculation formula) which could make some aspects more expensive than they are at present.
Given that there is going to be a General Election and that it can take a long time for a Bill to pass through all the stages required to become law, we do not know for certain if the proposals will become law, when that will happen or what they will actually be as changes almost always happen as a Bill passes through Parliament. ,
What we do know is that leases will continue to get shorter on the meantime.
We also know that marriage value does not affect leases with more than 80 years left to run. Delaying extending your lease could well cost you more in the long run if you have a lease that has more than 80 years to run.
Why use a solicitor to extend your lease?
The key reasons for instructing experienced cost effective solicitors are :-
- To start the parallel process of preparing and serving the documents to start the statutory lease extension process whilst at the same time, starting the without prejudice (non-binding without formal agreement) negotiations to extend by consent.
- To watch for time limits and time wasting – especially on extensions being negotiated by consent outside of the legislation.
- To handle the additional aspects of the lease extension such as obtaining formal consent from the existing mortgage lender.
- To deal with the necessary legal paperwork to formalise the extension after it has been agreed (there will need to a deed of variation which will need to be registered at the Land Registry) and correcting any defects in the
- To generally protect your interests.
- To deal with complications which can arise such as where the freeholder can’t be located or is unco-operative.
How long does it take to extend a lease?
This depends a lot on the negotiations and how other involved parties behave such as the freeholder, their solicitor and the valuers. The process can be as short as 6 weeks for a very quick agreement by consent, more usually expect around 6 months from start to finish but it can be longer if there are delays or disputes.
If you need experienced and affordable specialist lease extension lawyers in London please do contact us – we have a very successful team securing lease extensions for large numbers of clients.
