This depends on how long your lease has left to run, and also what your short and long term intentions are with the property. Generally any lease with more than 95 years left to run is considered a long lease, however, when the lease falls below this, it becomes a consideration. This mainly has to do with how the 1993 Act legislation calculates the purchase price for a lease extension, effectively making extensions cost more the shorter the lease becomes.
The cost is expodentialy more expensive the shorter the lease becomes, however, this effect is most drastic when the lease falls below 80 years. When this occurs, an additional calculation known as "marriage value" comes into the equation which has the effect of raising this purchase price.
When the lease fall below 75 years, most mortgage lenders will refuse to lend. This makes it very difficult to sell the property, as the buying market has been limited to "cash only" purchasers.
Lease extensions fall into two categories: 'statutory' and 'informal' (or 'non-statutory') types.
The decision on which to use depends highly on your individual circumstances, but should both options be open, it is advisable that every leaseholder to compare the pros and cons of each before deciding how to proceed.
The most reliable method is that of a statutory lease extension, which (provided you qualify e.g. have owned for 2 years) is commenced by your solicitor serving an offer notice on the Landlord. This type grants you a lease extension of an additional 90 years with a peppercorn ground rent. It can take on average 5-6 months to complete due to the prescribed time scales within the legislation. There is a formula set out in the statute for how the purchase price ('premium') is to be calculated, however, due to differences in valuation evidence this in most cases leads to certain amount of negotiation work between the landlord’s surveyor and your own surveyor. If no agreement can be reached, the First-tier Tribunal may decide it. Due to the fact that the rules are prescribed in legislation, this is seen as the most assured way of obtaining a lease extension.
Another way is known as a 'non-statutory' lease extension , this is a purely private agreement between you and the Landlord. This has no requirements and the terms can be whatever is agreed between the parties. Non-statutory arrangements can potentially be preferred, but one would need to proceed with caution. The process is typically faster than the other method and can complete within just a couple of months in theory. It is advisable that a leaseholder considering this approach compare the terms and price that is achievable in the statutory process
A 90-year extension to the current balance of your lease and your ground rent will reduce to a peppercorn. i.e. you will pay no more ground rent. The other terms should be the same as contained within your current lease, although, there is a limited scope and circumstances to allow for required changes to correct defects, or to modernize the lease.
While there is a number of things to consider, most crucially you must have been the registered owner of a residential long lease for at least two years
Yes, this is possible and is an option if a leaseholder cannot afford to pay for the lease extension Premium, as the Sale price of the property can be used to finance the Lease Extension Premium. But marrying these things together can be somewhat of a challenge.
Firstly, the method of lease extension (whether informal or statutory) will have some impact, as generally speaking the informal route is quicker and unlike the statutory method is not underpinned by completion deadlines. But in each option, it will require the conveyancing process for your sale to be at a similar stage as your lease extension process so that you are able to obtain those funds. Furthermore, if the purchaser of the property is obtaining a mortgage, then that mortgage company will often require certain assurances that the lease extension will be granted upon the release of funds, which will mean that a similar assurance will need to be procured from the Landlord granting the extension. So these things can be arranged, however it will require your legal representatives to be well-versed on such situations.
As a lease falls ever shorter, its marketable value also decreases. If it falls below 70 years, most mortgage lenders will not lend. This in effect cuts out a large group of prospective purchasers to your flat. When the lease falls below 80 years, there will be an additional factor payable as part of the 'premium' that you have to pay the Landlord in return for the lease extension, called 'marriage value'. Due to the fact that the price (premium) of a lease extension increases exponentially with expiration of lease years, it is therefore recommended to extend your lease well in advance of this. While the lease is above 90 years, the premium you will expect to pay is relatively cost-effective and, therefore, is often considered the ideal time to extend.
The method of the 'premium' calculation is set under the statute and is rather complex. it involves capitalising ground rents, 'marriage value' and 'deferment rates' and 'hope value'. There is a government sponsored online calculator that can be used to obtain a rough estimate of your costs. Click here to access this calculator. However, we recommend using an experienced Surveyor to get a more accurate quotation.
If your buyer is able to buy your short lease but does not want to wait for the 2-year ownership requirement in order for them to qualify for a statutory lease extension, then it is possible for you, the Vendor, to commence the statutory claim process and have this transferred (assigned) to the Purchaser together with the purchase of the leasehold property. However in order to do this a specific Assignment Deed needs to be completed and this process needs to be carefully carried out in order to avoid risks to the validity of that transfer having legally taken place. Please contact us for more information