This is the first of a series of blogs that will try to explain, in layman’s terms, how the process to extend your lease is undertaken for lease extension purposes.
We will not cover every single type of lease nor every single possible situation, as that will simply not be possible during a short blog. However, if there are any questions you may have that aren’t covered in these blogs then please feel free to contact us for a free friendly professional consultation.
A separate series of blogs will explain the process for a freehold purchase (or enfranchisement to use the correct terminology).
In order to understand how valuations are undertaken it is necessary to understand a bit about the background, not only the process of extending your lease, but also how the law evolved to get us here and why certain processes need to be followed correctly in order to ensure a successful outcome.
The type of lease extensions we will be discussing are only the ones relating to residential properties (flats and houses) and only applicable to properties in England.
Leases of commercial premises (shops, warehouses etc) are governed by different legislation and are totally different in the way they are valued and calculated.
What is a lease?
A lease is a legal document between the landlord of a flat/house (hereinafter called the Lessor) and a tenant (hereinafter called a Lessee) that gives the Lessee a right to own the flat/house in question for a specified number of years (usually 99 years and above but it can be any length over 21 years). During the term of the lease it is quite normal to pay a ground rent, which may or may not increase periodically throughout the term.
For example, a typical lease may be for an original term of say 99 years paying £50 per year for the first 33 years and then increasing to £100 per year for another 33 years and then £150 per year for the final 33 years.
What is a lease Extension?
At any time during the term of the lease the lessee can exercise their legal right to extend the lease by an additional 90 years. So, for example, if you have 50 years left on your lease you can extend it to 140 years (50+90) and reduce your ground rent to effectively NIL for the whole 140 years.
However, before embarking on this process certain criteria must be satisfied. These criteria will be expanded on in the next blog.
In order to start the process certain notices have to be served and the landlord must be compensated for the loss to his investment (i.e. the landlord will receive less rent and also has to wait a further 90 years to get his property back).
Who pays the fees?
As the lessee is requesting the extension the legislation states that the lessee is responsible for both his/her own surveyor’s and solicitor’s fees as well as the landlord’s “reasonable” fees. We suggest you allow a budget of say £3,500 for all fees.
So, as you can see, this is not a cheap process but getting the correct professional advice from the outset is important if you want to extend the lease for as little as possible, with the least amount of complications and receive the correct advice.
Some people choose to opt for professional advisers who are perhaps cheaper but as the saying goes “you get what you pay for”.