A new lease of life - SA Law, St Albans on the benefits of extending a home lease
PUBLISHED: 11:37 14 October 2013 | UPDATED: 12:09 14 October 2013
A short lease on a property can affect your ability to secure a mortgage. Belinda Walkinshaw, partner at SA Law in St Albans, explains how to give your home - and credit worthiness - a new lease of life
In legal terms, a lease is a written agreement under which a property owner allows a tenant to use the property for a specified period of time and rent. Most flats, maisonettes and apartments are owned on long leases which were for 99, 125 or even 999 years when the property was built and require the lease holder to pay an annual ground rent, usually between £50 and £500.
If the remaining length of the lease on your property is fewer than 80 years, most mortgage lenders are reluctant to lend, as this severely affects the value of the security they would be taking. Extending your lease will increase the value of your property and improve its saleability. Provided you have owned the lease on the property for at least two years, the freeholder is required by law to grant a lease extension of 90 years on top of the length remaining and reduce your ground rent to the nominal amount of ‘a peppercorn’.
Four steps to a new lease
Step 1 At first glance it’s difficult to know how much a lease extension is going to cost. You will need a surveyor to value your property. Typically, for a flat worth £200,000 with 82 years remaining on the lease and a ground rent of £100 per year, the cost would be £4,000 to £6,000. Once you have your surveyor’s report, you will be in a position to make a formal offer to your landlord.
Step 2 You will now need to instruct a lease extension specialist solicitor. Your solicitor will issue a Section 42 Notice of Claim setting out your claim to extend your lease and the amount you are offering to pay.
Step 3 Once the Section 42 notice has been submitted, your landlord is legally required to respond within two months and is entitled to a deposit of 10 per cent of the amount you have offered to pay. At this point you also become responsible for paying the other side their solicitor’s cost for investigating the title and the surveyor’s costs for preparing a report. Your landlord will reply with a counter notice. This will usually include the counter offer premium proposal and any other changes to the lease the landlord proposes. It is at this stage negotiations on price will take place.
Step 4 Once a premium has been agreed, your solicitor will agree the terms of the new lease and your lease will be extended. If the terms have not been agreed within six months of receiving the counter notice, it will be necessary to make an application to the Leasehold Valuation Tribunal for it to determine the premium and any other terms that are in dispute. In most cases it is possible to agree terms without the need to refer the matter to the LVT.
Collective enfranchisement Alternatively, if you live in a block of flats, all flat owners may join together to purchase their building through a process known as collective enfranchisement. On completion of this exercise, they are free to grant themselves appropriate lease extensions.