Tags: Buying A House, Property, Leases
OK, so it isn’t the most catchy phrase, and probably not the first thing that comes to mind at the start of the New Year!
January is often the time of year when your ground rent demand lands on your doorstep - you make the payment and forget about it and your lease for another year.
But did you know that you have other options? Or that the length of you lease can affect the value of your home?
It is important, if you own a leasehold flat that you check the remaining lease term. The length of the remaining lease term impacts the value of the lease and your leasehold property. In general, as the lease term gets shorter, the value of your property will also decrease, and the cost to extend the lease will increase. The cost of extending your lease will increase considerably if the time remaining drops below 80 years.
Furthermore, more and more mortgage lenders will only provide a mortgage for a leasehold property where the lease term has in excess of 80 to 85 years remaining. If you are looking to re-mortgage your property as your current mortgage deal is coming to an end, the lender may want you to extend your lease before agreeing to offer you the mortgage. Should you be looking to sell your property, a shorter lease term could result in a buyer not being able to obtain mortgage funding which could delay or scupper a sale.
But help is at hand. It is possible to extend the lease. There are generally two ways in which an owner of a leasehold flat can extend the lease to their property, these are known as the informal / private negotiation route or the formal / statutory route.
The informal / private negotiation route simply involves approaching your landlord and asking them to extend the lease and to see if they will be willing to offer and negotiate terms directly with you. If terms can be agreed then you can proceed to extending your lease. It is important to note that with an informal lease extension all of the terms of the lease are ‘up for grabs’ and can be negotiated including the ground rent, lease term, notice fees and other terms of the lease. Often the landlord will want to increase the existing ground rent on top of the premium paid for the lease extension.
If you cannot agree terms with your landlord, or if your landlord is not willing to negotiate or is absent or unresponsive you may be entitled to extend your lease using the formal / statutory route under the Leasehold Reform, Housing and Urban Development Act 1993.
The vast majority of leasehold flat owners are able to extend their lease using this process, once they have been the registered owner of the property for two or more years. (There are exceptions to this, sime leases are not capable of being extended by the legislation, such as shared ownership leases or leases granted by the a National Trust.)
The legislation sets out the process and mechanics for extending the lease and provides that the new lease will be for 90 years plus the remaining term of the existing lease, and the ground rent will reduce to a peppercorn (a nominal amount) for the rest of the term.
For example if your existing lease had a term of 83 years remaining, and the ground rent was £100 per year, if you extended your lease under the legislation the new term would be 173 years with the ground rent being reduced to a peppercorn for the remainder of the term.
As a very simplistic overview of the process; firstly the tenant (leaseholder) must serve a notice on the landlord, known as a notice of claim / S.42 Notice, setting out that they wish to extend their lease. The notice must include the premium (fee) the tenant proposes to pay to the landlord for the lease extension.
The Landlord will either accept the proposed terms set out in the tenant’s notice, or serve a counter notice proposing alternative terms. The legislation allows a period of time for the parties to negotiate however if terms still cannot be agreed the matter can be referred to the First Tier Property Tribunal to determine the premium to be paid and any other terms that have not been agreed such as the Landlord’s own costs and surveyors fees.
Once the terms of the lease extension have been agreed or determined by the tribunal the lease can be completed, the premium paid and finally registered at the Land Registry.
If you apply to extend your lease you will responsible for covering both your own, and landlord’s legal and surveyors fees.
The Leasehold Reform legislation is complex and places strict timescales on the parties which must be adhered to. It is also important to appoint a specialist surveyor who will be able to assist with assessing the likely cost of the lease extension and the initial figure to state in the notice of claim / S.42 Notice referred to above.
If you are interested in extending your lease, or would like us to check your existing lease term or discuss the process in more detail please contact us (Michael Coward). We would be delighted to discuss your options with you.