Lease extensions

Leasehold properties are sold under a legal agreement (a lease) which essentially transfers ownership from the landlord (freeholder) to the leaseholder for a certain amount of time (often 99 years - or even up to 999 years).

The freeholder owns the freehold of a property and the land it stands on, for an unlimited period, while a leaseholder essentially rents the property from the freeholder for a set period of time.

Leaseholders are liable to pay an annual ground rent to the freeholder and may be subject to various restrictions (eg concerning building an extension or making any major works to the property, owning pets or putting up a satellite dish). Leaseholders will generally need to ask the freeholder for consent before making any substantial changes to a property.

For more information, read Freehold and leasehold property.

Aside from the restrictions which come with a leasehold property, as a lease nears its end date the value of the property may decrease. If a leaseholder wishes to sell their property, extending their lease first may result in a higher sale price. Even if they do not wish to sell, it will generally be necessary to extend their lease before it expires.

As a rule of thumb, if a lease has less than 90 years left to run, it should be extended, to avoid depreciation and so as not to deter potential buyers (mortgages can be more difficult to obtain on properties with leases shorter than 90 years).

Leases which have less than 80 years to run become more expensive to extend, and those below 60 years can cost an additional 1% of the property value to extend.

The first step is for the leaseholder to inform the freeholder that they wish to extend their lease. Extensions of 90 years on flats and 50 years on houses are normally possible. A professional valuation will be required, after which a formal offer can be made and negotiations can take place. In the case of a dispute, it may be possible to apply to a tribunal to resolve the matter.

It is generally a good idea to Ask a Lawyer for professional advice when extending a lease.

For more information, read Leasehold property.

The cost of extending a lease will depend on a variety of factors, including:

• value of the property
• number of years left on the lease
• annual ground rent
• value of any improvements made to the property

A lease extension calculator is available from the Leasehold Advisory Service.

Leaseholders can sometimes purchase the freehold of their property, dispensing with the annual ground rent and restrictions and effectively making them the freeholder. This process is known as enfranchisement. In the case of blocks of flats, it is sometimes more cost effective for the leaseholders to group together to purchase the freehold of the building, rather than individually renewing their leases - this is called collective enfranchisement.

Enfranchisement is a complex process so anyone considering this option should Ask a Lawyer for professional advice.

For more information, read Leasehold enfranchisement.