Below you'll find answers to the questions we get asked the most.
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Lease extensions fall into two categories: 'statutory' and 'informal' (or 'non-statutory') types.
The most reliable method is that of a statutory lease extension, which (provided you qualify e.g. have owned for 2 years) is commenced by your solicitor serving an offer notice on the Landlord. This type grants you a lease extension of an additional 90 years with a peppercorn ground rent. It can take on average 5-6 months to complete due to the prescribed time scales within the legislation. There is a formula set out in the statute for how the purchase price ('premium') is to be calculated, however, due to differences in valuation evidence this in most cases leads to certain amount of negotiation work between the landlord’s surveyor and your own surveyor. If no agreement can be reached, the First-tier Tribunal may decide it. Due to the fact that the rules are prescribed in legislation, this is seen as the most assured way of obtaining a lease extension.
A non-statutory lease extension is a purely private agreement between you and the Landlord. This has no requirements and the terms can be whatever is agreed between the parties. Non-statutory arrangements can potentially be preferred, but one would need to proceed with caution. The process is typically faster than the other method and can complete within just a couple of months in theory. It is advisable that a leaseholder considering this approach compare the terms and price that is achievable in the statutory process.
A 90-year extension to the current balance of your lease and your ground rent will reduce to a peppercorn. I.e. you will pay no more ground rent.
There are several qualifying criteria, but the main one is that you must have been the registered owner of a residential long lease for at least two years.
As a lease falls ever shorter, its marketable value also decreases. If it falls below 70 years, most mortgage lenders will not lend. This in effect cuts out a large group of prospective purchasers to your flat. When the lease falls below 80 years, there will be an additional factor payable as part of the 'premium' that you have to pay the Landlord in return for the lease extension, called 'marriage value'. Due to the fact that the price (premium) of a lease extension increases exponentially with expiration of lease years, it is therefore recommended to extend your lease well in advance of this. While the lease is above 90 years, the premium you will expect to pay is relatively cost-effective and, therefore, is often considered the ideal time to extend.
Since you are the principal beneficiary of the lease extension, you are legally responsible for meeting all reasonable costs incurred in completing the lease extension. This includes your landlord’s legal and surveying fees. The total cost to extend your lease will therefore include the following elements: Start Lease Extensions fixed fee of £2,500 + VAT, which covers all your surveying and legal fees, except in the unlikely circumstance that you have to take the case to a valuation tribunal.
The Landlords reasonable legal and valuation fees + VAT.
The agreed lease premium to obtain the 90 year extension (use our Lease premium calculator to estimate this here).
You should bear in mind the following points when considering the costs involved:
1 - As part of the statutory extension, your ground rent will be reduced to a nominal amount. So, depending on how much ground rent you are currently paying, this saving will offset your costs over the future period that you own the lease
2 - Most mortgage providers will help you to finance the extension if required, since it increases the value of the property
3 - Finally we would reiterate that the total costs of obtaining an extension (most notably the premium) will only increase the longer you wait before starting the process, especially if your outstanding lease falls below the 80 year trigger point.