The Lease Extension Guide, Costs and Procedure
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If you already own a leasehold property or planning to buy one, then this leasehold extension guide is for you. It is very crucial for you to gain adequate information about the lease extension process and your legal rights in order to make the informed decisions for the property and save a thousand pounds.
Let’s discuss what is a lease extension?
A lease extension is simply a process to add some years to your existing lease of your leasehold property. A Leasehold property is not owned outright. It is owned by the freeholder but your lease gives you the right to own it for a fixed period of years (the term of your lease). Once your lease expires the property reverts back to the freeholder and you no longer have any rights to the property.
Once the original lease has been agreed the leaseholder is liable to pay annual ground rent that is set out in the lease document.
Now let’s discuss what is a lease?
A lease is an agreement between you (leaseholder) and your landlord (freeholder). The lease can be for any number of years but is usually between 21 and 999 years long. The lease contract includes rules, regulations, rights as well as obligations of the leaseholder as well as the freeholder.
Does the length of lease affect the property’s value?
Yes, the duration of the lease affects the property’s value. The primary reason behind this is the number of years left before lease expiration. The lower the number of years , the lower will be the value of the property and the sooner the property will revert back to the freeholder. However, you as a leaseholder have the right to extend the lease, but when the lease is near to its expiration, getting it extended becomes very costly. Furthermore, The lower the number of years the harder it can get to get a mortgage from a bank.
When is the perfect time to extend your lease?
There is no perfect time to extend the lease, however, the lower the length of the lease, the more expensive it will be to extend. Therefore, you should take appropriate steps to extend it sooner rather than later. But there is a point where leasehold renewal becomes really significant and that is at 80 years. The moment your lease falls below 80 years, the cost of the lease extension will start increasing. This is because at this point the leaseholder has to pay an extra amount known as marriage value on top of the lease extension premium.
How to calculate the cost to be incurred on lease extension?
The process to lease extension is defined under Scheduled 13, Part II of the Leasehold Reform, Housing and Urban Development Act, 1993. The premium amount is payable to compensate the landlord against the reduction in the value of the interest in the property as he will have to wait longer to regain control of his property In order to determine the cost of a leasehold extension, the following factors need to be considered, however, these are not limited to the following:
- Current market value of the property
- Number of years left in the lease extension
- Ground rent payable
- Value of the property after the lease is being extended
The best way to extend your lease is to get a Chartered Surveyor to value the premium for you. Although, there will be a fee payable, you will get the best advice and the adequate guidance to extend the lease at minimum cost and without any complications. At LeaseHold Valuations, we Provide professional service and walk you through the process in order to make this process less painful and to get you a better deal.