The Building Safety Act has muddied the waters for some leaseholders who are looking to extend their lease.
But what about those leaseholders who aren’t affected by the act?
How does the Building safety Act affect leaseholders?
As part of the Building Safety Act 2022, properties that are 5 stories or 11 metres tall may need non-cladding remediation work carried out.
It is currently somewhat unclear whether leaseholders in these properties will or won’t have to pay some of the costs for this work.
With cladding remediation costs potentially looming over them, many leaseholders in this situation are reluctant to extend their lease (even when it becomes ‘short’) as it is an extra cost which they may not be able to afford.
This article will provide advice for leaseholders who aren’t affected by the Building Safety Act and wish to extend their lease.
What is a lease extension?
A lease extension is a legal agreement which effectively extends the term of a leaseholder’s lease.
For example, if a leaseholder’s lease term is 70 years (meaning they have 70 years left on their lease) they can extend their lease by 90 years and the new term will be 160 years.
Why would you extend a lease?
There are many reasons why a leaseholder may wish to extend their lease, even if it seems like they have a lot of years left, which we’ve outlined below.
A ‘short lease’ is usually considered as a lease with a term with 80 or less years left.
Once a lease falls below 80 years, there is an additional form of compensation payable to the freeholder known as ‘marriage value’
Because of this, mortgage lenders are more reluctant to lend on leases with around 80 years left and, as a result, a property with a short lease is worth less than a property with a long lease.
This issue can be resolved through a lease extension, which would add an additional 90 years to your lease making it more attractive to mortgage lenders.
Despite the Leasehold Reform (Ground Rent) Act coming into force last year and preventing landlords from charging ground rent in new leases, for the extended term, the payment is still payable for leaseholders in existing leases.
And, when ground rent exceeds £250 per annum, leaseholders become more vulnerable to eviction as in certain circumstances if they do not pay the ground rent, their landlord can repossess the property.
For this reason, lenders are unlikely to lend on properties with doubling ground rent or ground rent over £250.
As a leaseholder with high ground rent, extending your lease will reduce the ground rent to a peppercorn (nil) and add 90 years onto the lease term.
In the full article, Anne outlines both types of lease extension, which is best, how much a lease extension costs and more. Click here to read it.