Our experienced Residential Property team can advise on all aspects of buying, selling and owning a property. This includes if you need to extend your lease.
What is a voluntary lease extension and why would you need it?
A voluntary lease extension is the process of negotiation between the freeholder and the leaseholder whereby additional years are added to the current lease by agreement.
Mortgage lenders are reluctant to lend against properties where there are under 70 years remaining on the lease and if a lease falls below 60 years, most lenders will not lend. Because of this, a short lease can make a property difficult to mortgage or sell. It is therefore necessary for a short lease to be extended before or at the time of a sale or remortgage.
A potential purchaser may insist that a purchase is conditional on the lease being extended. This can be completed simultaneously with the sale of a property. The sale proceeds can then be used to pay for the lease extension. This may be helpful if the premium is high, as the leaseholder may not be in a position to find a large sum of money at short notice without completing the sale.
A long lease term is generally more acceptable to a potential buyer and their mortgagee in the event of a sale.
How do voluntary lease extensions work?
A voluntary lease extension usually involves the leaseholder approaching the landlord to ask for the terms on which they would be willing to grant a lease extension.
The landlord will usually obtain a valuation of the property (at the leaseholder’s expense) to ascertain the premium that should be payable. Whilst it is not essential, if you are the leaseholder, it is a good idea to obtain your own valuation advice to determine whether the premium offered is reasonable. Once terms have been agreed, the parties’ solicitors will agree the form of the new lease.
There are two kinds of lease extensions: statutory and voluntary. We can advise which will apply in your case, and the benefits of each.
CONTACT US
If you wish to discuss a case with us, please contact Tracey Longdon on 01420 81285 or fill in the form below.
Statutory lease extensions
- Statutory lease extensions are governed by the Leasehold Reform, Housing and Urban Development Act 1993.
- A leaseholder must have owned the property for two years or more to be eligible to claim a statutory right to a lease extension.
- The leaseholder must serve a statutory notice on the landlord. The landlord has no choice but to agree to the lease extension if the qualifying criteria have been met.
- Governing legislation sets out the terms that a leaseholder is entitled to; being an additional 90 years on the remaining term, at a peppercorn ground rent. (A ‘peppercorn’ rent is a very small, often nominal, amount of money).
- Statutory lease extensions are subject to strict timetables and obtaining one can be a lengthy process.
Voluntary lease extensions
- Voluntary lease extensions are made by agreement between the parties.
- There is no eligibility requirement – leaseholders can proceed with a voluntary lease extension without having owned the property for two years or more.
- There is no need to serve a statutory notice. The landlord can amend the terms or withdraw their agreement.
- The landlord is free to propose any terms. It is up to the leaseholder to decide whether to accept them. It is generally advisable to consult a solicitor before agreeing to any terms. Following the introduction of the Leasehold Reform (Ground Rent) Act 2022, the ground rent would be reduced to a peppercorn even where terms are agreed voluntarily. The landlord can continue to charge the current ground rent until the end of the current lease term; any additional years granted would then be at a peppercorn rent.
- Voluntary lease extensions can progress quicker with the cooperation of all parties involved but would be subject to the lender’s consent if there is a mortgage on the property, which could delay matters.
Owning a share of the freehold
Where a leaseholder owns a share of the freehold, a voluntary lease extension can be agreed with the other freeholders. These can be on more favourable terms, such as a term of 999 years, a peppercorn ground rent and no premium payable. There would not be any eligibility requirements, and they can be progressed to completion much quicker.
Contact us
If you have any questions on lease extensions and how we can assist, please contact us at [email protected] or 01420 82879.
