Are you running out of time?
Leases are a depreciating asset: their value can be significantly affected by the length of time left on the term of the lease . Are you running out of time to protect the value in your property?
Many high-street lenders will refuse to lend against a property which has a lease with a term of less than 85 years. If your lease has less than 85 years, it is likely that it will have a significant negative impact on the value of your property. Many potential Buyers who have a mortgage will be excluded from buying your property. You will need a lease extension.
What is a lease extension?
A lease extension is the agreement between the Tenant and Landlord which extends the term of the original lease.
There are two methods by which you can extended a lease: the statutory (‘formal’) route and the voluntary (‘informal’) route.
Voluntary lease extension
A Tenant can approach their Landlord at any time on an informal basis and agree a price (“premium”).
The Tenant has more flexibility regarding the term and premium and has the ability to negotiate with the Landlord freely.
During informal negotiations a Landlord may require an increase to the Tenant’s existing ground rent, which could put off future Buyers and Lenders.
Sometimes negotiations fail and a formal lease extension may be the only way forward.
Statutory lease extension
A statutory lease extension permits a Tenant to exercise their right to extend their lease under s42 of the Leasehold Reform, Housing and Urban Development Act 1993.
To qualify, the Tenant must have owned the property for more than two years, and the lease term must be for more than 21 years. The Tenant is entitled to a 90-year extension to their existing term, with ground rent reduced to zero (a “peppercorn” rent)
The Tenant will require a surveyor to carry out a valuation of the property and advise of the appropriate price to offer to the Landlord in the notice.
A Tenant is expected to cover the Landlord’s ‘fair and reasonable’ valuation and legal costs.
Both processes have their advantages and disadvantages, Rowberry Morris would be happy to consider your circumstances and advise you accordingly. Please feel free to give our Residential Property team a call if we can be of any assistance.
Please contact our property team at Rowberry Morris for expert advice.