3 Ways to extend a lease

We are often asked by leaseholders what options are available to them for extending the term of their lease. There are essentially 3 options to extend a lease and reduce or completely eliminate the ongoing ground rent requirement. Here’s a quick guide to those options;

1. A statutory lease extension

A leaseholder is legally entitled to extend a lease by 90 years (by way of a Deed of Variation) and reduce the ground rent to a “peppercorn” (£nil). In order to do this a formal offer in a statutory format should be made to the freeholder at a premium (price) that is reasonable.

The freeholder will usually make a higher counter-offer at a higher price which can either be accepted or negotiated, often with the assistance of a surveyor. The leaseholder will be responsible for both their own costs and those of the freeholder.

If a negotiated price cannot be agreed the matter can be referred to a tribunal from which time both parties will become responsible for their own costs.

2. An informal lease extension

A leaseholder can contact the freeholder and negotiate any changes to the lease that you both agree. For example, the lease could be extended at a lower cost than under the statutory route but this will be achieved by a reduction in the additional lease term (say by an additional 50 years rather than 90) and often by having to agree to an increase in future ground rent payments.

This route is often adopted by leaseholders who wish to sell a property with a longer lease than currently held. However, the increased ground rent and shorter lease may act as a deterrent to potential buyers. Whilst this will initially be the least expensive option it will add less value to the property.

3. Buying the freehold

If sufficient leaseholders “club together” they have the right to purchase the freehold. At least 50% of leaseholders for the individual building are required to participate. After buying the freehold the participating leaseholders may extend their leases to 999 years (effectively forever) at a peppercorn ground rent.

The participating leaseholders will need to finance the share of the freehold relating to the non-participators although they will receive income from the ground rent that remains payable by the non-participators together with future lease extensions from the non-participators.

Whilst this is the ideal option it does require the co-operation and co-ordination of participators which is not always easy to achieve.

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