There are several reasons why you need to apply for a leasehold extension. Here is some of the most important.
Increasing the value of your flat
As the length of your lease decreases, it inevitably becomes worth less. If you have a very long lease (such as one over 100 years) then your flat is going to be worth more – possibly even as much as a flat which comes with joint ownership of the freehold of the block.
In a nutshell, the shorter your lease, the less you are likely to get for your flat when you try to sell it. It definitely pays to extend your lease by a further 90 years if you have the option.
You don’t have to do to extend your lease. You can simply do nothing and let your lease expire. However, if this happens then your flat will revert back to the freehold, meaning that you have nothing to sell and no lease to extend in the future.
A lease extension means that you will not be faced with losing your asset once the lease expires.
Lease Extension – It’s Easier to Sell Your Flat
Another great reason for lease extensions is that it is generally harder for tenants to sell properties that have shorter leases – simply because prospective buyers tend to be more drawn to properties with long leases.
When you come to sell your flat, you may find that you need to extend your lease if your buyer is to get a mortgage. The reason for this is that the length of unexpired lease is becoming a sensitive issue with mortgage lenders, with many insisting on longer minimum terms than they did a few years ago. The very fact of your need to sell with an extended lease, gives a significant negotiating advantage to your freeholder – who is likely to require an increased price if you want to extend your lease quickly rather than risk the inevitable delay of a formal lease extension application and risk even further delay involved in a trip to the First-Tier Property Tribunal (previously known as the Leasehold Valuation Tribunal).
However, the good news is that the process of lease extension can be started by the seller of the flat prior to putting the flat on the market.
For further information about how this works, call our specialist lease extension solicitors now on FREEPHONE 0800 1404544.
Lease Extensions Make It Easier to Mortgage Your Flat
It is getting increasingly difficult to get a mortgage on a flat with a short lease. Many UK lenders are increasingly tightening the criteria for lending on leasehold property. In fact, many mortgage lenders won’t approve mortgages on flats with less than 70 years left to run on the lease. In contrast, just a few years ago, the minimum term remaining on the lease required to qualify for a mortgage was nearer 55 years. This dramatic shift in lending criteria has simply left many flats un-mortgageable – and with the current economic climate, and the reluctance of many banks to lend, this is likely to get worse, not better.
The result, extending your lease in advance is very important when it comes to getting a mortgage or selling your flat.
Extending your lease – it’s much easier than enfranchisement
Leasehold, or collective enfranchisement, is the process by which tenants come together and jointly buy the freehold of their block from the freeholder. As a result, they not only become their own landlords, but also jointly become the landlords for those flat owners who didn’t join in with the enfranchisement.
Lease enfranchisement allows those participating to grant themselves a new 999 lease and it therefore provides even more security than lease extension. However, unlike lease extension, which only needs the involvement of the flat owner, collective enfranchisement requires the involvement of at least half of all the tenants of qualifying flats – which in large blocks means literally dozens of people coming together for an extended period to buy the freehold. That can sometimes prove very difficult to organise in practice – so individual lease extensions not only provide many of the advantages of leasehold enfranchisement, but also make any future enfranchisement application much easier.
Lease extensions – No ground rent is payable
As part of the formal, or stautory, process of lease extension, your ground rent will be reduced to what is referred to as a peppercorn rent i.e. In effect you will know longer need to pay any ground rent. So that’s an immediate win in cash terms.
Now is a great time to extend your lease
While extending your lease always makes good commercial sense, now is a particularly good time to go for your lease extension.
Why? Given the current and ongoing economic climate, the UK housing market remains strong and that means prices continue to rise. That’s great if you want to extend your lease – as the price payable to your landlord to extend your lease is directly related to the market value of your flat.
So if the value of your flat continues to increase, your lease extension is going to cost you more. That means if you can, you would be well advised to start your lease extension now – before it gets more expensive.
The consequences of failing to extend your lease
If any lease on a long leasehold residential property is not extended, it simply expires all runs out.
That could potentially mean you have to leave your home and will certainly mean that you will no longer have any legal rights to any financial investment you have made in it.
However, letting a lease ran out in this way is highly unusual – the complete failure to extend a short lease doesn’t often happen.
If a residential long lease is allowed to expire, there is however some hope for the previous owner if they live in the flat or house.
In particular law gives some security for long leaseholders to stay living in the property when the lease term comes to an end – rights which are contained in the Local Government and Housing Act 1989 [LGHA].
In some cases leaseholders can stay in their property on the same terms or, alternatively, might be offered a new assured periodic tenancy by their landlord. Alternatively, it is possible that the landlord may try to regain possession of property – the LGHA does allow for limited grounds where the landlord can re-gain possession of the property – but to do so they will need a formal court order.
Our advice is simple – never allow a residential long lease to expire
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