As a leaseholder, you have the legal right to extend your lease, thanks to existing laws. However, it is important to do your homework before diving into the process, as it can be both complicated and expensive if not approached properly. The journey can also be filled with confusion and stress, so a thorough understanding is essential to avoid pitfalls.
When a lease expires, the property is legally transferred back to the Freeholder. However, if you have owned the property for more than two years, you can apply for a 90-year lease extension. In many instances, this extension will also mean that you no longer must pay ground rent each year.
Even with less than two years of ownership, you can enter into a non-statutory agreement with the Freeholder, but it will be at their discretion. This also applies if the prior owners had started the lease extension process before the property transfer. First, you need to decide if extending the lease is the best move for you. If your lease has fewer than 90 years left, it is typically advisable to go ahead with an extension because:
- A property with a shorter lease has a reduced value, particularly when the remaining term is under 80 years. If the lease expires completely, the property will revert to the Freeholder by law.
- Mortgage lenders are often hesitant to approve loans for properties with short leases due to worries about the property’s diminishing value.
- It is more challenging to sell properties with shorter leases.
That said, there are certain cases where extending the lease may not be the most beneficial option, including:
- Your intention is to hold on to the property for a couple of years before moving elsewhere.
- The property has a lease with 90 years or more remaining.
- You are considering buying the freehold.
- Insufficient funds to cover the cost of extending.
- You are not going to outlast the length of your lease.