When Is the Right Time To Extend a Lease?
The longer there is left on a lease, the more it is worth, so it is vital that leaseholders are aware how much time they have left and that they are proactive about renewing. Knowing when to renew a lease is a key question and one that has become more complicated with recent changes to the law around leases and uncertainty over what further changes may be introduced in the near future.
For those looking for a quick answer, the important thing is not to let the time remaining on your lease drop below 80 years. This is because, if you need to renew a lease with less than 80 years remaining, then you will have to pay an additional cost known as marriage value, which can be substantial. While the government has proposed to abolish marriage value, there is no clear idea of when this would happen or any guarantee that it will. Whilst further reform to the leasehold system was expected in the 2023/24 parliamentary session, so far this has not materialised.
If you have substantially more than 80 years remaining on your lease, it may be worth waiting to renew and see what changes are introduced over the coming years. However, if you are getting close to the 80-year threshold, you are taking a risk by waiting and you could end up getting stung with having to pay marriage value.
In this article, we will explain how lease renewals work (including how marriage value is calculated), the recent legislative changes and the proposed future changes. Please note, this article should not be taken as legal advice – if you are a leaseholder or freeholder and need advice on a lease extension, please get in touch and we will be happy to help.
How lease extensions for flats work
There are two different routes that can potentially be used to extend a lease:
- Statutory lease extensions – where a leaseholder has a statutory right to extend their lease under the Leasehold Reform, Housing and Urban Development Act 1993
- Non-statutory lease extensions – where the leaseholder may or may not have a statutory right to extend their lease but reaches an agreement with the freeholder to extend their lease outside of the terms of the 1993 Act
To qualify for a statutory lease extension, the following conditions must be met:
- You have held the lease for at least two years
- The original lease term was at least 21 years
- The landlord is not a charitable housing trust with your flat being provided as part of their charitable operations.
If you qualify, you have the right to extend the lease by a minimum of 90 years.
If you do not qualify for a statutory lease extension, you can seek to negotiate a lease extension voluntarily with your landlord (a non-statutory lease extension), but they are under no obligation to grant this.
Note that lease extensions of houses fall under different provisions.
How marriage value works
If the time remaining on the lease has fallen below 80 years, then you will have to pay ‘marriage value’ to the landlord as part of the renewal. This is the amount that the value of the lease would increase as a result of the lease extension. The leaseholder has to pay 50% of the total marriage value to the freeholder – which can be a very large sum.
Recent changes to leasehold law in England and Wales
In 2017, the government ran a consultation on Tackling unfair practices in the leasehold market. This process was triggered by growing concerns about leasehold properties being sold with potentially unfair conditions, such as provisions for the annual ‘ground rent’ charged by the freeholder to double on a regular basis e.g. every 10 years. This left many leaseholders with unmortgageable properties that they would struggle to sell.
In 2021, the government announced plans to reform the way leaseholds work in England and Wales. The first stage of reform was achieved by the Leasehold Reform (Ground Rent) Act 2022, which effectively abolished ground rent for almost all new leases. Under the provisions of the 2002 Act, the freeholder may keep the ground rent until the expiry of the original lease term but the additional term of the lease must be granted with a peppercorn ground rent (effectively zero ).
What does the future hold for leaseholds?
Proposed future changes include:
- Giving leaseholders the right to extend their lease to 990 years with zero ground rent
- Abolishing marriage value
- The introduction of an online calculator to show the cost of extending a lease or buying a freehold which will remove the necessity to instruct a valuer and therefore additional valuation fees.
The government has also previously talked about moving away from leaseholds towards a system of commonhold. This method is widely used in many countries around the world, meaning that communal buildings, such as blocks of flats, are owned by a commonhold association, with each property owner becoming a member of the association. The unit owners would, therefore, have the right to make decisions about how the building is run.
While these changes would potentially be welcomed by many, there is no way of knowing when or if they will be implemented. With the next UK general election due no later than January 2025, time is running out for new legislation to make its way through parliament ahead of a possible change in government.
Get expert advice on lease renewals
Lease renewals are often relatively straightforward, but it is absolutely essential that both sides understand the terms they are agreeing to. Where there are any complicating factors, such as disputes about ground rent and service charges, then having expert advice is particularly important.
At Longmores, our Property team are very experienced in dealing with lease extensions under a wide range of circumstances. We can offer clear guidance through every stage of a renewal, making sure your rights and best interests are protected.
To discuss how we can help with a lease renewal, please contact Polja Atkins who will be happy to advise.
Please note the contents of this article are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.