Lease extension
When buying a home, leasehold properties can be found for sale all over the country. The term implies that you are entering into some sort of rental agreement and that the property will not truly be yours, despite paying a mortgage on it. Whilst this is not entirely untrue, there are many rights attached to leaseholding and because so many home buyers are put off because of their lack of understanding of what a leasehold property is, bargains can be found on the housing market if you are prepared to do your homework.
Leasehold properties are more often flats than houses and are often in either converted houses, purpose built blocks or on the upper floor(s) of commercial or retail premises. What a leasehold ownership essentially means is that the buyer has the right to occupy and own the flat for an extended period, known as the lease term.
Leases can run as long as 999 years, although they can be as low as 99 years. The property can be bought and sold many times during the lease period and will normally be advertised as ‘long lease’ or ’short lease’. What the buyer actually purchases is the lease on the property, whereas the freeholder still owns the external wall and any land around it. The freeholder is still responsible for the repair and maintenance of the building, which can be a positive detail for many buyers who do not want the time and expense of maintaining the property.
To cover the costs of this and any other works the landlord or his managing agent undertake, the lease owner is charged an annual service charge. This charge also covers the cost of buildings insurance and in some cases gardening, lift maintenance, cleaning of common areas and possibly central heating systems. If there is major work to be undertaken, the landlord or managing agent can ask for an additional payment to help with the cost, usually an agreed percentage of the overall cost.
In addition to this the leaseholder needs to pay an annual ground rent, which very often is a nominal payment of just a few pounds. The leaseholder is responsible for keeping the property in good condition and to make sure the occupation costs of ground rent and service charges are met. They also still need to pay council tax, utilities and other bills themselves and if they are planning any alterations they need to seek the landlords consent first.
Despite all these responsibilities, a leaseholder also has a surprising number of rights which are set out in the legislation and contract for the property. These include full consultation if the landlord plans any major work, the right to challenge administration charges and the right to manage, which means the leaseholders of a building can collectively decide how the building is managed. Leaseholders have the right to apply to a Leasehold Valuation Tribunal or LVT in order to challenge any of these issues. The LVT can also help the leaseholders to enforce the right to buy the freehold of the property, if a price cannot be agreed between the parties and they can assist in valuing the property in order to renew the lease.
If you are an owner of a leasehold property, you may need to extend it during your time in the property. As long as you have owned the lease for at least two years you should be eligible to buy a new lease and even if you are on a long lease, if you wish to extend it you are within your rights to do so.
You may not be able to exercise your right to a new lease if your building is owned by a charitable housing trust, the crown, is on National Trust land, is within the boundaries of a cathedral or if you have a business lease. If you are unsure whether you will be eligible to extend your lease, you are advised to seek legal advice as early in the process as possible.
It can be difficult to assess the cost that will be incurred to extend the lease as each is worked out on a case by case basis. The influencing factors in deciding the cost of a new lease are any reduction in the value of the landlord’s interest in the property as a result of giving you the lease, any compensation payable to the landlord for severance or other losses and any marriage value payable. Marriage value is essentially the difference between the expected value of the flat at the full lease term compared with its present value and is usually split between the leaseholder and the landlord.
There are also landlord’s costs which the leaseholder must pay, so it is highly recommended that legal support and advice is sought at an early stage in the lease extension process to avoid unnecessary costs later on.