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Lease extension and leasehold enfranchisement - what is it and why should I do it?Katy Stothard, Solicitor at Clarke Mairs, explains why now is a good time for flat owners to extend or buy their leases.
A lot of flats were built in the 1960s, 70s and 80s and sold on 99 year leases. Some people don’t realise that 99 years means just that – the lease will not go on forever and many of these leases now have less than 80 years left to run. For those who own leasehold flats there are two options laid down by statute:- Lease extension This is a simple process by which you obtain an extended lease from your landlord. Provided your lease is for more than 21 years and you’ve owned the flat for more than two years you are entitled to an extended lease. This is a new lease - the same as your current lease but with an extra 90 years and with ground rent reduced to a peppercorn (nothing). You do need to pay your landlord a premium for the new lease which reflects the additional benefit you are getting in gaining the 90 years and what your landlord is losing. Collective Enfranchisement This is a process in which the flat owners in a block of flats come together to buy the freehold of the block and any gardens, garages, parking areas and so on. Provided at least 50 per cent of the flat owners in a block co-operate, they can force the landlord to sell the freehold of the block to them. The advantage is that the leaseholders then have absolute control over the block and can make decisions about issues such as the management, insurance, decorating and expenditure etc of the block and can grant lease extensions without paying a premium. They can then either run the block themselves or employ a managing agent to do it for them. This does require a great deal of cooperation between the leaseholders but can save money in the future. It is particularly useful when leaseholders have ongoing problems with their landlord or managing agent. Why now? Many flats have only 50-80 years remaining on their term. Once there are less than 80 years left, the cost of an extended lease becomes much higher. The shorter the time left on the lease, the more expensive it gets to extend. For example, for a flat now worth £150,000 with 80 years remaining on the term and a ground rent of £50 per year, the premium for a lease extension would be in the region of £2-4,000. For the same flat with only 65 years remaining, the premium would be £12-14,000. With the increased difficulties of getting a mortgage and refinancing in today’s climate one of the things lenders are really looking at is the length of the lease. Many won’t lend if there are less than 70 years remaining. This means it can be difficult or impossible to sell your home or remortgage without extending your lease. The premium for a lease extension depends on the value of the flat and so while house prices remain lower, the premium for a lease extension is lower. Some landlords are refusing leaseholders’ informal requests for lease extensions, knowing that the longer they leave it, the higher the premium they will get. Provided you follow the correct procedure, and subject to a few very limited exceptions, your landlord can’t refuse a lease extension. Leasehold houses Much the same applies to leasehold houses. Provided you’ve owned your house for at least two years and the lease is for 21 years or more you can buy the freehold. The message to take on board is that the earlier you act, the less it will cost you. For more information and property advice, email kss@clarkemairs.com |
