Should I Continue With My Lease Extension?
The Housing Secretary Robert Jenrick announced earlier this month that the government will proceed with the reform of the leasehold housing sector by implementing the recommendations of the Law Commission’s report “Leasehold Home Ownership: buying your freehold or extending your lease” published on 20 July 2020.
The eye catching news implies that leaseholders can now extend their leases to 990 years at no ground rent payable. The impact of the news is of particular importance to those leaseholders who have already started the process of extending their leases for additional 90 years and no ground rent payable under the Leasehold Reform, Housing and Urban Development Act 1993.
There are two parts of the proposed reform, one in relation to future ground rents and another in relation to reform of the leasehold system. Whilst the government promises to deal with legislation in respect of future ground rents within this parliamentary session, and this will take minimum of 12 months, the reform of the leasehold system, will take at least few years.
The problem with lease extensions under the 1993 Act is that they have time limits by which the terms of the lease extensions need to be agree and the new lease completed. If the leaseholder decides to pull out of the lease extension now, his liability to pay the freeholder’s legal and valuation fees will automatically arise. The leaseholder would have also incurred substantial fees on his own legal advisers and valuers. Withdrawing from the lease extension process means that the leaseholder is prevented from seeking another lease extension for minimum of 12 months from the date of withdrawal. If the proposed reform has not taken place by this stage, the leaseholder runs a risk of having to pay greater premium to the freeholder as the lease term by this stage would be shorter.
In essence if you have commenced the process of extending your lease pursuant to the 1993 Act, the recommendation would be to continue. If the lease is to fall below 80 years within the next 12 months, there is a risk that you may not benefit from the proposed legislation but may have assets that banks would not lend money on. If your lease has a longer term, you can wait and see whether the reform takes place within the next few years.
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Please note the contents of this blog are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.