Can You Always Renew A Leasehold?

Nikka Sulton

Can You Always Renew A Leasehold?

The impending leasehold reform brings about changes, prompting consideration of when to extend your lease. Let’s delve into the implications and timing of lease extensions amidst these developments.

What is a lease extension?

In the realm of leasehold properties, a lease extension involves prolonging the lease term through a legal agreement. Failure to extend the lease results in the property reverting to the freeholder at the lease’s end, a consequence stemming from outdated feudal laws. Extending your lease thus circumvents this inequitable outcome.

What is the lease extension new law?

In November 2023, the Leasehold and Freehold Reform Bill introduced promising changes, though it stopped short of abolishing leasehold entirely. Among its improvements are measures to streamline and reduce the costs associated with extending leases or purchasing freeholds, potentially saving leaseholders significant sums, particularly those with short leases.

However, it’s important to exercise caution, as there’s no certainty that all proposed reforms will be included in the final Bill, or that it will receive Royal Assent and be enacted before the next General Election. Moreover, depending on the Bill’s outcome, there’s a possibility that the cost of lease extensions could actually rise. Stay informed about these proposed changes and the latest developments in leasehold reform by exploring our comprehensive guide.

Should I extend my lease now?

For leaseholders considering when to extend their lease, understanding the implications of proposed changes is crucial. The decision to proceed may hinge on various factors, including the evolving landscape of leasehold reform. Stay informed about developments and assess your individual circumstances to determine the optimal timing for lease extension.

When to extend your lease

Amidst the uncertainty surrounding leasehold reform, we consulted with Linz Darlington from Homehold, specialists in lease extension, to shed light on when to consider extending your lease based on individual circumstances:

Lease Duration: With 80 to 82 years remaining, extending is advisable to avoid potentially higher costs once the lease falls below the 80-year threshold, triggering marriage value implications.
Lease Exceeding 82 Years: Whether to extend depends on personal preference; while reforms may reduce costs, there’s also the possibility of increased expenses. Those comfortably above 100 years may opt to wait for clarity on reforms.
High Ground Rent: Delaying extension could be beneficial, as reforms might offer relief from excessive ground rent charges in the future.
Lease Below 80 Years: Similarly, waiting may prove advantageous, as prospective reforms could lower costs through the elimination of marriage value.

Considering selling your leasehold property soon? A lease with under 90 years remaining may deter buyers and diminish property value. While selling with a shorter lease is feasible, it often results in financial losses. However, individual circumstances vary, underscoring the importance of seeking expert advice.

Why would I not want to extend the lease?

Considerations regarding lease extension may vary based on your circumstances:

If your lease is already lengthy (over 90 years), extending it may offer little advantage, unless you seek to eliminate ground rent obligations.
Financial constraints are a factor; if you’re heavily mortgaged and cash-strapped, the significant expense of a lease extension may not be feasible without careful budgeting.
Short-term residency plans could render lease extension unnecessary, especially if you intend to relocate within a few years, unless extending the lease enhances property market appeal.
Full freehold ownership negates the need for lease extension in houses, though it may still be pertinent for flats. If you and your neighbors collectively own the freehold, extending leases becomes simpler and more cost-effective.
If your life expectancy doesn’t exceed the remaining lease term, opting not to extend might be pragmatic, leaving the lease issues for your heirs to address in the future.

When to extend your lease to avoid costs rocketing

As we’ve mentioned, leasehold reform is impending – pending approval. However, until then, the expense of extending a lease amplifies as it diminishes in duration. This escalation is particularly pronounced for leases with fewer than 80 years remaining, where the cost swiftly escalates.

For instance, around the 60-year mark, the annual cost of lease extension typically surges by approximately 1% of the property’s value. For a property valued at £250,000, this translates to an annual increase of around £2,500. As the lease dwindles to zero, its worth declines significantly, leading to the property’s reversion to the freeholder. Yet, even after lease expiration, you may retain a right to extend it for a designated period.

Am I allowed to extend the lease on my flat?

Yes, indeed. If you’ve held ownership of the property for a minimum of two years, most flat owners hold the legal entitlement to request a 90-year extension to be appended to their existing lease from the freeholder. Ownership tenure is the sole requisite, allowing application even if residing elsewhere. However, for those owning the property for less than two years:

Pursuing a non-statutory agreement with the freeholder remains an option, subject to their consent. Yet, informal lease extensions bear risks, emphasizing the advantages of a formal (or statutory) extension for enhanced protection. Refer to our comprehensive guide for insights into why formal extensions offer greater security.
Should the property’s previous owner have initiated the extension process, you might inherit their progress. Nonetheless, assurance of inheriting the right rests on due diligence during the property purchase.

In cases where none of the above scenarios apply, a waiting period of two years is inevitable.

Notably, pending leasehold reform proposes an extension of the standard leasehold term to 990 years. Furthermore, the stipulation requiring new leaseholders to possess a two-year ownership tenure before benefiting from these reforms is slated for removal.