Category Archives: Lease Extensions

Information for leaseholders and freeholders about the process and costs of extending the lease on a leasehold property.

How can I find out how much my lease extension will cost?

This is a question for a valuer or surveyor who specialises in this area, but if you know the lease length and the current value of the flat and the ground rent schedule, then you can have a go at working this out approximately by using one of the calculators available online, like this one:

http://www.bishopandsewell.co.uk/lease-extension-calculator/

These type of calculation tools come with a health warning as they are only approximate, and cannot consider the unique circumstances of your property, however they can be useful in deciding whether you can afford to go forward with the process, or more importantly if you are thinking about making an offer on a short lease property, what the likely cost will eventually be.

 

Am I a qualifying tenant for lease extension?

In order to qualify for a lease extension you need to own a ‘long lease’ of a flat.  A ‘long lease’ is a lease that is granted for more than 21 years originally (regardless of how long the lease is now).  You need to have been the registered owner of the property at the Land Registry for at least 2 years.

Subject to these conditions, you can bring a claim to an extended lease.  There are no restrictions on who may bring a claim and therefore a company or an individual or a trust can claim an extended lease, subject to 2 years’ ownership and the property being a long lease flat as stated above.

Will the ground rent increase after a lease extension?

If your lease is extended under statute the ground rent will be reduced to a peppercorn (i.e. nil). There will be no more ground rent to pay and the lease will be extended by 90 years on top of the unexpired term of your existing lease.

In other words, if your lease was originally 50 years long the new lease would be 140 years, with no ground rent for the remainder of the term.

If you agree a voluntary deal with your landlord/freeholder to extend the lease then it is possible that the ground rent will increase and there are no controls over what kind of ground rent parties may agree.  Typically the ground rent may be in a schedule, something like £200 to £300 per year increasing at 25 year intervals for the duration of the lease term.

It is also possible that a new ground rent proposed by the freeholder could review to a fraction of the open market value of the property, or to a much higher compounded sum of money in which case independent advice should be taken from a valuer before committing to any transaction.

If the ground rent is deemed too high then in the future the property could become un-mortgagable.  Or, the ‘balance’ between premium and ground rent could be wrong. According to the statute, compensation for the loss of ground rent forms part of the premium payable. If there is a ground rent retained, then that part of the premium is no longer payable, otherwise the flat owner can end up paying twice for the same thing.

You should also consider whether decreasing the ground rent will increase the amount that would need to be paid if there were to be a claim to the freehold or subsequent claim to extend the lease, on the basis that the ground rent income would need to be capitalised out as part of compensating the freeholder.