Pros and Cons
- A lease extension will make a leaseholder's property more marketable as mortgage lenders will often not lend against properties with leases of less than 70 years. A more secure family inheritance will hence be created.
- From a freeholder's perspective the process enables them to realise value from their asset without surrendering the freehold.
- The terms of a lease extension may be agreed informally. Alternatively, a leaseholder may compel the freeholder to grant a lease extension via the statutory route. In order to do this, the leaseholder must meet certain qualification criteria.
- Whichever route is chosen, it is critical that both sides have an accurate valuation of the cost of lease extension.
Statutory Lease Extension
- The lease will be extended by a further 90 years.
- The new lease should be on the same terms as the existing lease, subject to modifications to update the old lease, modify a defect or to update a term of the lease where the law has changed.
- 'Peppercorn' Ground Rent will be charged under the new lease, essentially meaning that the lease becomes rent free.
- If the cost of the lease extension, terms of the new lease or cost of the freeholder's legal work cannot be agreed, the matter can be referred to the First-tier Tribunal (Property Chamber) for arbitration.
- The statutory route may take several months to complete.
Informal Lease Extension
- The number of additional years added to the lease may vary depending on negotiations.
- Additional clauses may be added to the new lease, or existing clauses altered. These may be onerous to the leaseholder.
- The Ground Rent may be increased.
- The freeholder will likely require that any legal or surveyors costs incurred during negotiations be paid by the leaseholder. These costs are unlikely to be negotiable or refundable should the matter not proceed.
- The process can be concluded relatively quickly, although not if a freeholder withdraws from the transaction without notice.