A Concise Guide to Lease Extensions

A Concise Guide to Lease Extensions

December 27, 2023

When you purchase a property in England or Wales, you'll typically be granted a lease, which gives you exclusive rights to the property for a specific number of years. These leases are often long-term, commonly lasting 99, 125, or even 999 years.

When a lease is approaching its expiration, the owner (leaseholder) should contemplate extending the lease to maintain possession of the property. As the lease term diminishes, so does the property's value, while the cost of extending the lease increases. Mortgage’s relating to a lease can also be affected as lender often require a minimum number of years left on the lease.

There are two avenues for extending a lease, and this article outlines the key considerations:

Option 1: The Legal Route

This is the more formal option and the one most leaseholders choose. It’s known as a statutory lease extension, and it’s governed by the Leasehold Reform, Housing, and Urban Development Act 1993 (with some updates from the Commonhold and Leasehold Reform Act 2002).

How it works:

1. Serve a notice under Section 42 of the 1993 Act to gain an additional 90 years on the lease at a peppercorn ground rent (£0).
2. The new lease usually keeps the same terms as the original one, but with limited room for changes.

Qualifications:
To qualify, you need to have owned the lease for at least two years, and the original lease must have been granted for over 21 years.

Exceptions:
There are exceptions, like if you have a commercial lease or if your freeholder is a charitable housing trust.

Step-by-Step Process:

1. First, get a valuation to find out how much the extension will cost.
2. Then, serve the Section 42 notice to the freeholder.
3. Negotiate the terms of the lease. If you can’t come to an agreement, you may need to apply to the First-tier Tribunal.
4. Complete the new lease within two months of agreement.

Option 2: The Informal Route

This involves negotiating a voluntary agreement with the freeholder/landlord, without any legal entitlement to extend the lease.

Procedure:

• Negotiate directly with the freeholder/landlord.

Considerations:

• An informal extension may result in a shorter lease extension at a lower cost, but there are no guaranteed negotiation rights.

Mortgage Considerations:

• Lender consent is required for a voluntary extension and may incur administration fees.

Conclusion:

This guide provides a basic overview of lease extension fundamentals. For more detailed advice, it is recommended to consult a specialist leasehold legal professional.