Leasehold houses and flats have had a lot of coverage in the press recently culminating in the report prepared for Sajid Javid (Secretary of State for Communities and Local Government) on abuses of the leasehold system in the housing market.
As a result of all this coverage, more and more people are becoming aware of the length of their lease and that maybe it is not as long as they thought it was.
Here are five good reasons why you should consider extending your lease:
1. A lease is a diminishing asset which means that for each year after it is granted, it becomes shorter and less valuable. Any lease with less than 80 years left is regarded as a short lease. As the lease becomes shorter, it becomes more expensive to extend.
The Leasehold Reform Housing and Urban Development Act 1993 entitles the leaseholder to a lease extension of 90 years, in addition to the existing term of the lease. It also entitles the leaseholder to reduce the ground rent to a peppercorn (£0) from the date that the lease is extended, and all the other terms of the lease remain unchanged.
You have the right to a lease extension if you have owned your lease for a period of two years or more, and your lease was originally granted for a term of 21 years or more. You do not need to live at the property to exercise your right to extend the lease.
2. Most leaseholders do not realise that they have a short lease until they come to sell the property. At that stage they discover that their lease is short and that they cannot easily sell. In these circumstances it is still possible to sell but you will need to ensure that the solicitor dealing with the sale understands the process so that they can assist you to start the lease extension and assign the benefit to your buyer, who can continue and complete the extension after they have bought the property. In this way the buyer does not need to wait two years to extend the lease.
3. Re-mortgaging the property can also be difficult when you have a short lease. Depending on the number of years remaining, some lenders will not lend. It is very important that you know the length of your lease and that you do not allow it to fall below 80 years. For technical reasons, the cost of extending the lease increases sharply once the 80 year mark has been passed.
4. Much of the press comment referred to above has been about increasing and extremely high ground rents. A ground rent is a payment made by the leaseholder to the freeholder for the term of the lease. The lease will usually provide that this ground rent increases over time. In some leases the increases happen over a long period of time and therefore are not noticeable, however some leases have very large increases in very short periods of time making a ground rent which was affordable when the leaseholder purchased a property unaffordable.
A statutory lease extension give you the right to extend your lease and reduces your ground rent to a peppercorn going forward. In this way a lease extension can resolve the issue of high ground rent.
5. By extending your lease, you ensure that the value of one of your main assets is preserved to safeguard the financial security of you and your family for the future.
These comments specifically relate to flat leases. However a similar system applies to leases of houses which can also be extended.
What should you do next?
Once you have established that you have a short lease you will need to consider how you will extend it. If this is not going to be done as part of a sale then you will need to consider how you will fund the lease extension. Remember, the shorter your lease becomes, the more expensive it will be to extend it, so it is better to take action sooner rather than later.
Here are a few practical next steps which you can take:
1. Get in touch with a surveyor who specialises in leasehold enfranchisement work. Ask them to carry out a valuation for you, so that you have a better idea of how much the lease extension will cost you.
2. If you don’t have sufficient funds to extend your lease then speak to your Mortgage Company or Bank to see if they will lend you the money. As this will improve the value of the asset which they hold as security, they are likely to agree to this.
3. Get in touch with a solicitor who specialises in leasehold enfranchisement work to start the lease extension process. At VWV we have many years of experience dealing with this type of work and we would be happy to assist you with your lease extension or just talk through the process with you so that you can understand what needs to be done.
Christina Le Riche is a Senior Associate at national law firm VWV