Lease Extensions in London

As trusted lease extension experts, we work with our clients, valuing property and assisting with the complex process of lease extensions in London.

What is a statutory lease extension?

If you own a leasehold property, you may be aware that as the lease gets shorter, the property value decreases. While this does not necessarily pose a problem while living in your home, a short lease can be troublesome when you wish to sell. Buyers are often wary of short lease properties, and many mortgage companies will not lend against leases under 85 years. A lease extension reverses the inevitable drop in value, so that the full value of the property can be realised upon sale.

The Leasehold Reform, Housing and Urban Development Act (1993) gives owners of leasehold properties (typically flats and maisonettes) the right to extend their lease by 90 years, entitling them to:

• 90 years being added to the remaining term of the lease of a flat (50 years on a house)
• Ground rent being reduced to ‘a peppercorn’ (zero) for the entirety of the lease
• A premium paid to the freeholder calculated according to the law

At Peter Barry, our team of RICS Registered Valuers and Chartered Surveyors have extensive experience helping clients extend their lease. Over the years, we’ve carried out hundreds of leasehold valuations and negotiated lease extensions ranging from straightforward to adversarial cases and appearing at Tribunal.

Are you eligible for a lease extension?

If you wish to extend the lease of your property, you first need to establish if you are eligible under the legislation. The right to a statutory lease extension is subject to certain qualifying criteria. These include:

• Having owned the property for at least 2 years
• Having owned a long lease (with an original term of at least 21 years)

This entitlement is not valid if the freeholder is a charitable trust and the property is provided as part of the functions of the charity, or if the lease is a commercial lease.

If you are not eligible for a formal lease extension under the Act, you may be able to make an informal approach to the freeholder and negotiate a lease extension that way. However, please be advised that if you are choosing this route, you are not protected by the Act and your freeholder can refuse to grant a lease extension or impose unfavourable terms.

When should you extend the lease on your property?

A lease extension is one of the most important investment decisions you can make to restore the value of your home, provide security and a good return on your capital. However, be aware that the longer you leave it until your lease extension, the more expensive it becomes.

A leasehold property is a depreciating asset, and as the term reduces, so does the property value. When the term reaches 80 years or less, it becomes much more difficult to obtain a conventional mortgage, meaning the property will be much harder to sell and can rapidly lose value.

What’s more, once the lease falls to 80 years or less, you will have to pay 50% of the ‘marriage value’ (the property value increase as a result of the lease extension), which can be a substantial amount and drive up the cost of any lease extension significantly.

If you are thinking of buying a leasehold property, we would advise you to be very careful about any property with less than 90 years remaining on the lease, to allow for plenty of headroom to fulfil the eligibility criteria for a statutory lease extension well before you become liable for marriage value.

The Statutory Lease Extension Procedure

1. Check to see if you are eligible for a statutory lease extension under the Leasehold Reform, Housing and Urban Development Act 1993.
2. Inform the freeholder of your wish to extend the lease on your property via the statutory route.
3. Instruct a lease extension solicitor who should be a member of the Association of Lease Extension Practitioners (ALEP) and has demonstrable expertise in the field.
4. Instruct an experienced local lease extension surveyor to obtain a formal lease extension valuation for your property.
5. Serve a Tenant’s Notice (Section 42 Notice) on the freeholder, detailing a formal offer of the premium you wish to pay, based on the valuation.
6. Pay the deposit to the freeholder – 10% of the lease valuation offer or £250, whichever is higher – within 14 days.
7. Negotiate an acceptable premium with the freeholder in the event that your opening offer is declined.
8. (If no agreement is reached)
   Apply to the First Tier Tribunal (Property Chamber) to get the premium agreed.
9. (If there is a mortgage)
   Obtain consent from the mortgage lender and arrange for a Deed of Substitution to be signed.
10. Register the lease extension with the Land Registry, which can take up to 6 months to complete.

The whole process to extend a lease typically takes 3-12 months. By choosing your professional advisers wisely, you can maximise the journey’s efficiency and minimise undue delays.