A guide to lease extensions
A guide to lease extensions
Whether you're a landlord or tenant, it’s important to know your rights and how the lease on a property could change over the course of a contract. In this quick guide, we'll run through what lease extensions are and how they work.
What is a lease extension?
A lease is a binding contract that outlines how many years a leaseholder can live in a property. Once this fixed period of time is over, complete ownership goes back to the freeholder, or landlord. Every year, the remaining term on the lease reduces, but a lease extension can be applied which increases the amount of time the leaseholder owns the property. Leaseholders are legally entitled to extend their lease term by 90 years if they meet certain criteria. This is outlined in the Leasehold Reform Housing and Urban Development Act 1993.
Who is eligible?
If the leaseholder has owned the property for at least two years and is in possession of a long lease that had a minimum of 21 years when it was granted, they will most likely be eligible for statutory lease extension. Although, this doesn't apply to property that is owned by a charitable housing trust or commercial leases. Informally, there may be an agreement between the freeholder and leaseholder to extend the lease even if these criteria are not met.
Why get a lease extension?
When a lease runs low (there are 70 years or less remaining on it), it becomes much more difficult to sell a property and its value decreases rapidly. This makes a lease extension a valuable investment, as it restores the value of the house while providing security and good capital returns.
How does the process begin?
The leaseholder may approach the landlord to discuss a lease extension, but it's sensible to do this with legal advice. Within the statutory process, the leaseholder will have to serve an Initial Notice which sets it in motion. Before this though, the leaseholder will need to decide on a premium to offer the landlord according to what they can afford and the value of the property. The landlord can then counteroffer.
At Horton Valuers, we can offer you help on any aspect of lease extension, including both valuation and negotiation.