Should I Extend My Lease?

Homeowners may be aware that the Government is making it easier and, in some cases, cheaper to extend a lease.

However, we are unclear about when the reforms will take effect.

Under the current rules, you can either proceed under the informal route, whereby a leaseholder can approach the freeholder to ask whether they will negotiate a lease extension.

There is no obligation on the freeholder to respond or even agree to the lease extension.

If the freeholder does agree, the parties will negotiate the terms and amount to be paid for the lease extension.

Starting the process informally could save time and money.

However, there are risks with going down this route, as the freeholder may only agree to extend the lease by including onerous terms in the lease or for a high premium.

However, you can also proceed under the statutory route, which sets out that a leaseholder who has held the lease for the past two years is given a right by law to extend the lease by an additional 90 years, with the ground rent becoming a peppercorn, i.e. nil.

You will expect to pay a premium to the landlord to extend the lease, which is made up of an amount to cover the ground rent that will no longer be paid.

If the lease term is below 80 years, then an additional premium is payable, called the marriage value.

Unfortunately, there is no definitive timetable for when the Leasehold and Freehold Reform Bill will become law.

However, the bill is currently making its way through Parliament.

The Government has suggested that it might happen this year and would like it to occur before the next election.

However, there are no current proposals for it to come into force.

So, the question many leaseholders ask is whether you should extend now or wait for the changes to come into effect.

This would ultimately depend on your individual circumstances, as there may be a number of factors affecting your decision, for example, a sale of the property or whether you need to re-mortgage.

If a lease is under 80 years, then it may be difficult to sell or re-mortgage, which means it is necessary to extend your lease.

However, you will need to consider that a marriage value will be payable in addition to the premium.