Is Leasehold Extension An Option For You?

There are an estimated 3 million leasehold flats and houses in England and Wales, and for the owners of these properties, leasehold extension is an urgent consideration. Most people will have the statutory right to extend their lease, but there are exceptions. In this article, we'll look at who qualifies for leasehold extension, and why the process of extending leases should be started sooner rather than later.

The main statutory basis for extending leases is the Leasehold Reform Housing and Urban Development Act 1993, as amended. Under this Act, flat owners on a long lease are entitled to a leasehold extension of 90 years, in addition to the remainder of their existing term. This extension is granted at a peppercorn rent, meaning, in effect, that ground rents are no longer payable to the landlord. Owners of leasehold houses are entitled to apply for a lease extension under the Leasehold Reform Act 1967, as amended.

Even though this is a generic legal right there can be exceptions. To begin with, you must have owned your lease for a minimum of 2 years, however you need not have resided in the property for that time. Secondly, the legal right to extend is granted to owners of properties on a long lease, that is, a lease with an original term of more than 21 years. For house owners, there is the additional restriction that the lease can't have been extended in the past - under the current law, leases in houses can only be extended the once.

As well as these statutory exceptions, other exceptions may apply to individual properties on a case by case basis. For example, certain properties leased from a charitable trust, or the Crown, may not qualify for lease extension.

If you find out that you are in fact able to apply for an extension, your next decision should be whether or not it is worth doing. The most tangible and pressing reason is financial. As the length of the lease slowly but surely winds down, so too does the value and saleability of your property. Short lease properties are notoriously unpopular with buyers and mortgage companies, and are very difficult to sell, unless you're lucky enough to live in a really desirable area. Getting a lease extension can also cost a lot more if your term falls below 80 years. At this point, you become liable for the "marriage value", a premium that's paid to the landlord in addition to the compensation for their diminished interest in the property. This is becoming more and more of an issue, as many properties were leased for 99 year terms in the 1970s and 1980s - these are now dipping below the 80 year cut-off point.

The right to leasehold extension is a fairly safe assumption, but it's by no means a guarantee. If you do own a leasehold property, it is crucial that you seek advice from an experienced leasehold solicitor. To do otherwise might prove to be a very expensive oversight.