The Leasehold Reform Housing and Urban Development Act 1993 (as amended) gives lessees the right to extend the lease on their property, subject to certain qualifying criteria being met. This is important because, over the course of time, as the remaining length of lease shortens, the value of leasehold property is reduced. This is also why it can be difficult to finance the purchase of a property that is subject to a short lease.
The 1993 Act holds that the leaseholder is entitled to an additional 90 years, in addition to the unexpired term at a peppercorn (nil) ground rent. For example, if the remaining term on the original lease is 60 years, the term -once extended- will be 150 years with £0 ground rent payable each year.
A premium for lease extension is payable, in return for the extended lease. Tenants should be aware that the premium payable will significantly increase once the unexpired term falls below 80 years. At this point, the assessment will need to consider ‘Marriage Value’. We recommend that you check your lease to establish how many years are left and start a lease extension process a few years prior.
In order to help tenants seeking to extend their lease, we carry out an initial assessment of the best and worst case scenarios and set out the range within which we think the premium should eventually be agreed. If required, we can also represent the tenant in negotiations with the landlord’s representative in order to establish the final premium. You will also need to appoint a legal advisor to deal with other aspects of the process.
Increasingly, landlords will make an informal offer for extending the lease on terms that differ from the provisions of the Act. We advise that such an offer should be considered with care, but can sometimes be attractive to lessees.