The process of adding more years onto your lease is called Lease Extension. Due to the complexity of the lease extension valuation and the overall process, it comes with its own issues. Here we will discuss how to avoid the most common issues in Lease Extension in UK. Most flat owners and a fair number of house owners in the UK are long leaseholders. This means they do not own the freehold of their homes and are in a tenant/landlord relationship with the owner. Leases on flats or houses last normally up to 99 years or 125 years from when the property is built. After this, the property goes back to the freeholder. Lease extension in the UK can be carried out if you are an eligible leaseholder. The lease agreement holds the details about the rights on the property of the leaseholder and the freeholder. This arrangement comes with its fair share of problems. For example, if the duration of your lease falls below 80 years it can significantly decrease the value of your property and make it harder for you to sell it. Fewer mortgage lenders will be willing to lend against it.
Most common issues in lease extension
Lease extension in UK can be a daunting task and comes at a cost. You may use the lease extension calculator to find out the costs but the process of lease extension valuation calls for complex calculations considering the length of the lease, ground rent, value of the property when it is extended and various other factors. After the freeholder’s and the leaseholder’s surveyors have done their valuation it comes down to negotiations between the freeholder and the leaseholder. The Lease Extension Valuation calculator in UK can also get you an estimate of the lease extension costs. All this turns into a rather tedious process and takes an enormous amount of time. It is best to hire a solicitor to carry out the processes due to the legal documentation involved.
Issues with Informal Lease Extension
Keep in mind that current laws require the leaseholder to pay everything including the expenses of the solicitor and surveyors of both the leaseholder and the freeholder’s and obviously the premium. This is why it is sometimes tempting to skip the statutory process and strike an informal negotiation with the freeholder. This process can be faster and save expenses related to the freeholder’s surveyor.
But it is important to note that taking the statutory route can make your ground rent negligible. On the other hand, making an informal lease extension runs the risk of increasing it. Making an informal lease extension also deprives you of the protection and security provided by the lease extension legislation. The freeholder may set the terms of the lease to his own liking, which may include increasing the ground rent.
There is also the possibility that the freeholder may just extend the lease back up to 90 years or 99 years instead of giving you an additional 90 years. This means either you or a new owner may have to go through the entire lease extension process again.
When to extend a lease
If you are trying to extend a lease that has fallen below 80 years, it may burn a hole in your pocket because lease extensions get much more expensive after that period. So every year that you wait for your lease extension, the more expensive it gets. When it comes to selling your house, any new buyer will find it hard to be accepted for a mortgage when the duration of your lease has fallen below this level. So the number of years left on your lease is critical for selling or remortgaging your property.
As per The 1993 Leasehold Reform Act, if you are a flat owner, you are entitled to a lease extension on your flat after you have owned the property for at least two years. You possess the right to extend the lease by 90 years and reduce the ground rent to zero. But if you own a house you only gain an additional 50 years upon extending the lease which makes buying the freehold a better option.
Issues with service charges
Services charges are the amount that the landlord charges from the leaseholders in return for providing maintenance and repairs to the property. The terms and conditions for these are laid out in the lease agreement. Service charges may include the cost of services like general maintenance, cleaning of shared areas, repairs, building insurance etc. This is one of the main areas where disputes are expected to occur between the leaseholder and the freeholder.
The service charges could either be fixed or set on a variable basis. Fixed charges are where the leaseholder is required to pay a fixed amount irrespective of the actual costs to the freeholder. The fixed charge is now usually a part of older leases because as costs increased due to inflation, the freeholders now prefer to charge based on the actual cost of the services to make sure they recover their costs every year. These charges may change from time to time and are called variable service charges.
Service charges may fluctuate but the freeholder is allowed to recover only a reasonable amount from the leaseholder and if at any point you find the freeholder being unreasonable with the amount he is charging you have the right to apply to the tribunal to challenge these service charges.
It is a good idea to find out what the current and future service charges are going to be for a leasehold flat that you are about to buy.
Preparing the Tenant’s notice
The process for a lease extension starts with the valuation and then to service of the tenant’s notice. Note that from the date of receipt of the notice by the landlord you are liable for costs incurred by the landlord concerning your lease extension. So make sure that there are no errors in your notice and that it is up to the mark and accurate. If the tenant’s notice is found incomplete, it becomes invalid and the landlord has the right to reject it. You may apply to the County Court to get this corrected but this will cost you additional money so it is best to avoid that from happening.
It is recommended to register your notice with the Land Registry because, in the event where the landlord sells the freehold to another, the lease extension procedure can continue as though the new owner had received the original notice.
It is best to instruct a solicitor to prepare the notice and serve it so you can avoid any mistakes which may lead to legal issues arising from it.
If you are looking for help with Lease Extension is Slough we are happy to help. Our team of chartered surveyors can help you successfully negotiate your lease extensions or enfranchisement. Contact us for a consultation today.