Another week’s news, another plethora of depressing articles about dropping house prices and predicted double digit percentage price falls got me thinking about how you can add value to your property. The obvious way to do this is to improve the property by renovating it but it is not the only way, more and more flat owners are choosing to extend their lease which can also add significant value. I’ve been through this process when I lived in my London flat and my personal experience of the process was that it was quick, easy and it did add value as well as making my flat more saleable. This topic is relevant to both residential landlords and tenants as both benefit from the process, tenants by adding value and, more detail as to why below, making the property more lender friendly while landlords can raise funds by receiving the premium the tenants pay for their extended lease. In summary both parties need to be fully appraised of their position to achieve the best outcome.
Coming back to why an extended lease makes the property more lender friendly. The current position, with some exceptions, is that lenders will look for a lease with at least 70 years still left to run so generally the shorter term you have left to run on your flat lease the less mortgage options you potentially have. Rather than wait until you are approaching the 70-year mark when you are likely to pay a higher premium, we advise you to start the process much sooner or around the time your lease has 80-90 years left. The process of a tenant extending its lease is a statutory one under the Leasehold Reform Housing and Urban Development Act 1993. This gives any qualifying leaseholder aka the tenant the right to apply for a 90-year extension to their residential lease term, to be a qualifying leaseholder, you need to satisfy three criteria namely:-
you own a lease that was for a term longer than 21 years when it was granted; and
you have been registered as the owner of this lease at the Land Registry for at least two years ; and
you are not a business tenant.
It does not matter whether you live the property and most flat owners qualify.
Any qualifying leaseholder can serve notice on their landlord requesting a 90-year extension to their residential lease and this notice triggers the statutory process. The notice must state the premium the tenant is prepared to pay as well as details of the lease. While there are online calculators that give a ballpark idea of what premium you should offer, it is better to instruct a specialist surveyor to value the lease extension as this is likely to be more accurate. Once you have served this notice, a landlord must respond within a fixed time which is usually 2 months either accepting the tenants offer or making a counteroffer which starts a negotiation process. If after this the parties cannot agree terms, there is the fallback of a court process to determine these. Once terms are agreed the new lease can be granted quickly which concludes the process.
The above article is not legal advice as every situation is different so, please contact Aileen Houghton or Richard Harriman on 01494 521301 for advice on your position. The team here have experience of advising both residential landlords and tenant from initial advice through to concluding the new extended lease so if you are a residential tenant looking to start the process or you are a residential landlord and have had a notice served on you then we would be delighted to work with you.