What is a Lease Extension?

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Before we answer what is a lease extension, we have to define some terminology:

  • A freeholder is the person or management company that owns land.
  • A leaseholder is the owner of a property, typically a flat or maisonettes, that sits on the land.

The leaseholder leases or pays rent to the freeholder for the privilege of this arrangements.  Each lease has a fixed term.  Ownership of a property reverts back to the freeholder when the lease has expired.

When purchasing a leasehold property, the length of the remaining lease will be known so that buyers are aware of the number of remaining years in the agreement.

Lease Extension

Leasehold properties are described as depreciating assets because the value of a leasehold property reduces every year. It should be noted that lenders are less likely to provide a mortgage for a leasehold property with less than 80 years remaining on its lease. Also, many buyers are reluctant to purchase any lease with less than 90 years remaining.

Therefore, it is in the leaseholders interest to apply for a lease extension. It will increase the value of the property and make it more desirable when they sell it in the future.  

A lease extension is governed by the Leasehold Reform, Housing and Urban Development Act 1993. It states that an additional 90 years may be added to the term of the lease for qualifying leaseholders. Further government guidelines may be found here.

There are a number of factors to consider before starting a lease extension:

  • The market value of the property
  •  The number of years remaining on the current lease
  • The ground rent
  • The value of internal improvements made such as upgrading appliances, services, windows, doors and insulation

Please contact us if you have any further questions or would like to book your Lease Extension.

Categories: Lease Extensions