Who should extend their lease?

Linz Darlington | June 2019

If you own a leasehold property, there are four situations when you need to think seriously about extending your lease:

  1. if you have a lease with fewer than 80 years left – take action now!
  2. if you have a lease with between 80 and 90 years left
  3. if you have a ground-rent rise coming up and the increase is linked to RPI
  4. if you want to reduce your ground rent to £0

Let’s dig a bit deeper into why.

Leases with fewer than 80 years left

If you have a lease with fewer than 80 years left you need to consider taking action now. This is because once a lease has dropped below 80 years, the value of your home begins to drop at an increasing rate every year. In turn, this means that the cost of extending the lease will also go up at an increasing rate each year. A lease with fewer than 80 years left will also make it more difficult should you want to sell your house.

It's never black and white

It can cost a substantial proportion of the value of your property to extend a lease with fewer than 80 years left. Because of this, there is an argument that it is worth waiting for government to reform lease law in the hope that the price for leaseholders will be reduced. The major political parties have both put leasehold reform on the agenda, although there hasn't been much action yet.

The downside of waiting for change is that the situation for leaseholders can get worse over the short term. Over the last couple of years a number results at the Upper Tribunal such as 'Mundy' and 'Zucconi' have changed the balance of favour towards freeholders in negotiations about short leases. There are pros and cons to both taking action now or holding out for change.

Lease with between 80 and 90 years remaining

If your property has between 80 and 90 years left on it the value will not have begun to drop rapidly.

But if you can complete the process before the lease drops below 80 years you will avoid having to pay an extra charge to you freeholder. For lease extensions under 80 years you have to share any value that’s added to your property by extending the lease. This could run to several thousand pounds, so it’s well worth planning ahead.

It will also have an impact if you want to sell your flat. Prospective buyers are always more wary of properties with fewer than 90 years.

If you have a ground-rent rise coming up and the increase is linked to RPI

If you extend your lease through the formal route (where you are protected by the law) your ground rent will be reduced to zero.

Some leases demand that ground rent goes up with increases in inflation. This normally happens at intervals of five or ten years.

With RPI-linked ground rent it is often the current ground rent which is used when calculating the cost of the extension. So it is well worth doing before the cost increases.

If you don’t want to pay ground rent any more

Whether or not you have ground rent that goes up, you might just fancy not paying any at all!

If you extend your lease through the formal route (where you are protected by the law) your ground rent will be reduced to zero.

Check here to see whether you have onerous ground rent

You have a right to extend your lease!

Read our step by step guide on how to do it

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