Leasehold properties are subject to rights and obligations. These are often set out in an agreement between the Landlord (usually the owner of the freehold) and the Tenant. This agreement is called the Lease. The Lease is granted for a certain number of years. If it’s a pre-existing lease, the lease would be assigned or transferred. These days, where residential property is concerned, the lease term is usually 125 years. In the past it was common to grant a term of 999 years.
As an owner with a leasehold interest in property you want to make sure you can eventually sell the property without difficulty. As the term of years of the Lease decreases, so does the value of the leasehold interest. When the term of years reaches a certain level, the law allows an extension to the term of the lease. You can do this by serving a notice on the Landlord for the Lease to be extended. To extend the lease, certain conditions have to be met by the tenant. For example, you must have owned the property for two years. The process itself is procedural – there are rules and you have to follow them.
You can also enter into a private agreement with the Landlord. This means that you can avoid the lengthy process set by law, and reduce the timetable through own negotiations. This depends on the parties and their respective bargaining power. For example, a smaller landlord may be willing to negotiate a shorter timetable or lower premium but a larger landlord may not.
So, how will you know that you need to extend the lease? A good indicator is the requirements of a mortgage lender. These requirements can be for an existing property you live in and you are perhaps re-mortgaging, or a property you are thinking of selling or buying.
Lenders always consider the terms of the lease on properties with a mortgage at the time of purchase.
Lenders apply different rules on properties without a mortgage.
It is generally the case that if the remaining years of the lease are 80 or less, then you would need a lease extension. This is likely to be a condition of your mortgage offer. This means you either have to obtain the lease extension at the same time as the mortgage is completed, or within a specified time of completion of the mortgage.
If you are a seller, and the remaining years on the lease are 80 or less, consider a lease extension before selling. The buyer, if you dont, may have to obtain this before the sale can be completed and this will cause delay. If you a buyer and want to purchase a property which has 80 years or less, I would recommend that the lease is extended. Ideally, this should be done at the same time as the purchase is completed and if you are obtaining a mortgage, it may be obligatory.
A statutory lease extension adds 90 years to the remaining term. If, for example, 80 years remain on the lease, the post-lease extension would amount to 170 years. Lease extensions also allow for other terms in the lease to be changed, allowing for modernisation of the lease. This is especially so if this is a long-standing lease. However, you cannot significantly alter the terms in order to give a different meaning to the clauses within the lease.
Alternatively, leaseholders within the same building may consider whether they qualify for Leasehold Enfranchisement. This is where the leaseholders collectively buy the freehold from the Landlord/Freeholder. This is complex and needs to be explained in another blog!
If you need advice in this area of law or other property related areas, please contact me, Waheeda Joomun, on 020 3150 1919 . Alternatively, or by email firstname.lastname@example.org