A lease extension is a contract between parties (the freeholder and leaseholder) that adds a continuation period to a long lease and replaces the current lease with a new one. Mortgage brokers are unlikely to lend money on a property with a short lease, therefore, people tend to extend their lease when they are about to sell their property, to ensure that it is more valuable to future owners.
As a lease gets shorter (i.e., the number of years gets lower), the lease value decreases. The shorter the lease, the more expensive it is when you decide to extend the lease.
What is the lease extension process?
In order to be eligible for extending a lease, various factors must be met. The criteria to be eligible to extend a lease is set out in the 1993 Leasehold Reform Act.
The process for extending a leasehold property begins with valuation. We have set out the typical process below:
- A surveyor carries out a valuation of the property. This involves strict checks and calculations, alongside considerations of the current lease length, property location, ground rent, lease terms and property value without the lease extension.
- An opening offer will then be presented to the freeholder. This figure is served in section 42 ‘Tenant’s notice’.
- The serving of this notice triggers a two month period in which the freeholder must respond and serve their own notice. This is known as a section 45 notice and is the landlord’s counter notice.
- It is possible to make an application to the Leasehold Valuation Tribunal (LVT) in cases whereby you are unable to agree on a price within two months. This process can be expensive, however it might be necessary for the LVT to make a ruling and decide what a fair price is.
- Once a figure has been agreed upon, a solicitor should draft a new lease.
- After both parties have signed the new lease, your solicitor will register the new lease with the Land Registry.
What is the timeframe for extending a lease?
The Leasehold Reform Act outlines some of the mandatory timeframes by which a particular task must be completed when extending a lease. For example, as mentioned, a section 42 notice must be responded to by the freeholder within two months with a section 45 notice.
Following both section 42 and 45 notices being served, negotiations to settle on a figure can take upwards of six months. This negotiation period is the most significant factor that affects the timescale.
Finalising the lease can take between 1 and 3 months, and registering the lease with the Land Registry can take another few months.
Overall, the process typically takes between 3 and 12 months to complete.
Solicitors for Lease Extensions Marylebone
There are a multitude of factors to be considered when extending a lease, from the costs, to the strict timeframes, and other relevant legislation.
This blog was prepared on 8th March 2023. It is not intended to be advice and should not be relied upon as such.