So you are thinking about extending your lease?
But how do you do it and who should you turn to? Here is a quick explanation from the experts:
The lease is of a predetermined length and will eventually expire. When it runs out, the freeholder can take back the keys of the property. In reality, this day seldom comes because circumstances will force the owner to do something about the diminishing lease (and there are rights to remain in occupation paying a rent). But theoretically the property will revert to the ownership of the freeholder, who is sometimes called the 'reversioner' as a result.
There are no two ways about it. The leasehold flat or house is a wasting asset as a result of the shortening lease. The closer the lease gets to zero years unexpired, the more it reduces the value of the property. Of course, in a rising market, this is more than outweighed much of the time by the appreciation in the value of the property. In a static property market, a diminishing lease will gradually reduce the value of the property, all other things remaining equal.
Leaseholders can extend their leases by serving a Section 42 Notice. One stipulation is that they must have owned the property for two years (unlike a Section 13 notice for purchasing the freehold, when leaseholders can participate from day one of ownership). When successful, they will have the right to an extension of 90 years to the current term and ground rent is effectively reduced to zero.
You should talk to a solicitor specialising in lease extensions and leasehold enfranchisement. Our members will explain the options available to you during an initial telephone conversation.
Sometimes it is possible to negotiate informally with the freeholder to extend the lease. They may agree to a smaller lump sum and an increase in the ground rent, but to shorter extension terms in return. You should be careful about making sure the agreed terms represent good long-term value compared with the standard benefits of the Section 42 Notice and that onerous clauses are not inserted into any redrafting of the lease.