Is now a good time to extend my lease?
Posted on: 29/04/2021
Niki Adkins is an Associate and Leasehold Specialist in our expanding Leasehold Property Team. In this article, she answers the question: Is now a good time to extend my lease? Niki looks at factors such as reform legislation and cost; going on to describe the lease extension process.
What is a lease?
A lease is the ‘contract’ between a leaseholder (flat owner) and their freeholder, which governs what goes on in the building and, importantly, how long you can live in the property for; usually 99 or 125 years at the start of the lease.
What is a lease extension?
In short, it is a process whereby the number of years remaining on a lease is increased; or another way of looking at it is that the lease is ‘refreshed’.
Why should I extend my lease?
As time goes on, that lease gets shorter, and therefore becomes less valuable as an asset to the leaseholder. If the lease ran all the way down to zero days, the leaseholder would have to move out and hand the flat back to the freeholder.
As such, a lease extension is required to ensure that the lease never gets that short. It also reinvigorates the value of a flat that was lost whilst it has been getting shorter.
Mortgage lenders don’t like leases that are short. As crazy as it sounds, 80 years can be considered ‘short’ by some mortgage lenders. As a result, 99 year leases often require extensions within the first 20 years of their lifetime!
As a result, a lease extension will ensure that your flat is attractive to any purchaser if you choose to sell; or to a mortgage lender should you need to re-mortgage or take finance out against the flat.
Selling a flat with a short lease devalues a property. My colleague Anne Albritton goes into further detail about this here.
When is the best time to extend my lease?
Today is always better than tomorrow….
As your lease gets shorter, it becomes more expensive to buy a lease extension. As a result, the sooner you acquire a lease extension, the cheaper it will be. Extending before the lease drops below 80 years will also save you a lot of money (if you can) as a compensation known as ‘marriage value’ is not payable.
Once a lease drops below 80 years (even by a day), the price payable for a lease extension increases as the ‘marriage value’ payment kicks in. For the avoidance of any confusion; ‘marriage value’ has nothing to do with vows or wedding ceremonies.
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