Lease Extensions: Frequently Asked Questions
Why do I need a lease extension?
A lease is a wasting asset and the lower the term of years, the lower in value it will be. A lease extension should be sought before the lease drops below 80 years.
This is for a number of reasons:
- Once the lease falls below 80 years, marriage value applies. This forms part of the calculation to determine the premium and can make the lease extension cost considerably more;
- A lease with a higher term of years remaining will be more valuable than a lease with a short term remaining; and
- Generally speaking, lenders are not comfortable with leases that have less than 80 years remaining. Consequently if you would like to sell your property or remortgage, it is likely that a lender will require a lease extension;
When should I extend my lease?
The right time to extend a lease is dependent on the situation and the reasons for extending the lease. We would advise that when your lease has roughly 90 years remaining you should start to consider a lease extension as you may need time to arrange the financing of this.
What is the difference between the formal and informal method?
The informal method involves you negotiating and coming to an agreement with your landlord as to the premium for the lease extension and the terms of the lease extension.
The formal method involves exercising your statutory right to a lease extension. You are able to request a lease of an additional 90 years (in addition to the term of years remaining), the ground rent to be reduced to a peppercorn and the lease to be granted on the same terms as the existing lease (save for reasonable modernisation or rectification of errors).
How can I finance my lease extension?
There are three common ways to finance a lease extension:
- Savings or a loan;
- Remortgaging; or
- If selling the property, using the sales proceeds to extend the lease on the same day as the sale.
How much will it cost?
We would be happy to provide you with a quote for our costs and anticipated disbursements in acting for you in a lease extension.
However the additional costs to consider are:
- The premium for your lease extension (a specialist lease extension surveyor can advise you on this);
- Your surveyor’s costs;
- Your landlord’s legal fees and disbursements (which must be reasonable but are not known at the outset); and
- Your landlord’s surveyor’s fees (which must be reasonable but are not known at the outset).
If you would like to discuss extending your lease, please contact Beth Rose by emailing brose@meaby.co.uk or calling 0207 703 5034.
