If you own a flat or property where you are required to pay ground rent, then you’ll be in a leasehold agreement. As an owner of the property, there may come a time when you’re required to extend your property lease to avoid the risk of seeing the agreement expire. While this sounds easy in principle, the process can be costly and complicated, and the timing needs to be right to avoid extending it too late.
So, when should you extend your property lease to avoid these uncertainties? The general rule of thumb is that you ideally need to consider extending your property lease around 80 years before the agreement is due to expire. If you leave this any later than 80 years, then you risk the cost of extending your lease dramatically increasing.
While there are currently ongoing discussions in Parliament to decrease these unfair costs, no law has yet been approved to protect homeowners. So, when you purchase a leasehold property, you ideally need to be aware of how long you have left on your agreement. If you’re approaching the 80-year mark on your lease, then it’s time for you to explore your options before it’s too late. To help you better understand the whole process and why it’s important, the helpful experts at Crest Chartered Surveyors in London have put together this short guide for you to explore.
Is It a Good Idea to Extend a Lease?
As a property owner with a leasehold agreement, you may be concerned about the amount of time remaining on your contract. This is because the leasehold dictates whether or not you can live in the property. While you own the flat or the internal space, you do not own the building. Once your leasehold agreement expires, you no longer have the legal right to live on the property, so it’s important to make sure there is enough time within your agreement to cover your lifetime.
Not only that, but the value of your property can decrease if your lease has a short time remaining. Typically, the value starts to decrease if there’s less than 80 years before it fully expires. When this starts to happen, it may also become more difficult to mortgage your property, as lenders will become concerned about the value decreasing and will factor this into their assessment. For this reason, if you are in this position, you must use a registered Chartered Surveyor to provide an accurate property valuation.
On the other hand, if you’re looking to sell your property, this can also become more difficult if there is not sufficient time remaining on your leasehold agreement. Prospective buyers may not consider the property as good value for money if the lease does not cover the next 80 years at a minimum. So, if your agreement is less than 90 years old and you’re considering selling your property, then exploring your options for extending your leasehold is valuable for you.
When Should I Consider Extending a Leasehold Agreement?
You can only consider renewing your agreement if you’ve lived in the property for longer than 2 years, and have at least 21 years remaining before the contract expires. Alternatively, if you have owned the property for less than 2 years, you can negotiate an informal agreement with your landlord. To do this, you will need the help of both your chosen Chartered Surveyor to ensure property costs are correct, and a solicitor to navigate the informal agreements.
What Is the Leasehold Extension Process?
When it comes to extending a leasehold, you have two different options. The first is the full Statutory Lease Extension Process, which enables a homeowner to extend the lease using the Leasehold Reform Act 1993. Here, you can extend your lease by no more and no less than 90 years.
The second option is the informal extension process. This option can be risky, but you’ll be provided with the opportunity to negotiate and agree to a deal between you and your freeholder. One downside of this option is that it’s likely that you’ll continue to pay ground rent, whereas all extensions using the Statutory option will have their ground rent removed. However, this choice can be quicker and cheaper than the formal route.
What Are the Cons of Extending a Leasehold?
As with any process, there are advantages and disadvantages to extending your leasehold agreement. These can vary depending on whether you choose to go down the formal or informal agreement route. But before we get into that, there are common disadvantages that can apply to both. These disadvantages include:
The process can be expensive. A landlord can request that you pay their legal fees as well as your own.
There is no point in extending your lease if you already have over 90 years left on your current one, unless you want to explore your options on how to get rid of your ground rent.
The process can be slow, as landlords are not currently held to strict deadlines to act to renew your lease.
If you go down the formal Statutory route for extending your leasehold agreement, there are some cons to consider. The first is that the process does take longer compared to informal agreements, and the cost is usually higher. Your chosen solicitor should work with you to reduce the time and costs, especially as landlords have previously been known to make the process go on longer by not responding quickly.
The informal route isn’t always the perfect choice. If you believe this method is best suited for your scenario, then it’s important to consider any new damaging clauses that can be introduced in your lease from your landlords. Your landlord may choose to do this if your lease is below the 80 year rule, making it more difficult to negotiate new terms. Similarly, your landlord is in a position to walk away from negotiations at any time. For this reason, the statutory route is always recommended if your lease is approaching 80 years until expiry.
Receive Help With Your Lease Extension Process With Crest Chartered Surveyors in London
To ensure that your lease extension process runs smoothly, it’s important that you seek the help of a professional chartered surveyor, and a solicitor. At Crest Chartered Surveyors, we’re able to provide a reliable and affordable service to assist you with your property valuations during your lease extension. We specialise in London and the surrounding counties, offering a quick, trustworthy and friendly service that supports your requests. For more information, simply get in touch with one of our helpful advisors, and we’ll be happy to help.