Lease Extensions: The 80 Year Trap
If you own a leasehold flat, you have the right to live in it for a certain number of years. This is called the “lease term.” As the lease term gets shorter, the value of your flat will eventually become unattractive to mortgage lenders.
To increase the term of your lease, you can ask your landlord to extend it. This is called a “lease extension.” However, lease extensions can be expensive.
Help is available in the form of the “Leasehold Reform Housing and Urban Development Act 1993.”
This law allows you to force your landlord to extend your lease at a reasonable price. You are entitled to an extra 90 years on top of what is remaining, and you will not have to pay any ground rent during the new lease term.
To get a lease extension, you need to serve a formal notice on your landlord. This notice should include certain information, such as the price you are willing to pay for the extension. The price is usually calculated by a surveyor based on a formula that takes into account the loss of ground rent and the fact that the landlord’s right to get the flat back at the end of the term is postponed by 90 years.
There is no marriage value payable if the lease is 80 years or above at the time of serving the notice.
This means that if your lease is 80 years or more, you will not have to pay any extra money to your landlord for the extension. However, if your lease is less than 80 years, you may have to pay a significant amount of money.
To summarize:
- After 2 years of ownership, a leaseholder can buy an extra 90 years to their existing lease.
- No ground rent will be payable during the term of the new lease.
- 80 years is the crucial cut-off point at the time of serving notice. Below this, it could end up costing you a lot of money.
If you want more advice on lease extensions, please call Ellis & Co on 020 8900 1919.
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