Lease extensions

Although there is no specific number of years at which point a lease could be considered too short, any lease having fewer than 90 full years remaining should be considered for extension. As the length of the lease diminishes it will become more expensive to extend. In all cases you are advised to consider extending your lease well before the remaining term has reduced to 80 years. If you are considering the sale of your leasehold property the length of the term remaining on the lease will be of primary concern to a potential buyer.

Extending a lease with 90 years of the term remaining will result in a considerably lower payment to the landlord than extending the same lease if significantly fewer years remain. You may wish to consider extending your lease well in advance of a proposed sale to ensure that these issues do not hinder or delay your sale.

We find that most buyers will be nervous about accepting a lease with less than 90 years or so left to run. In these circumstances buyers may not be prepared to proceed unless and until the lease has been extended, so it makes sense to extend the lease before marketing. Additionally, if the lease has a particularly short term remaining the property may not be regarded as being acceptable for mortgage purposes.

When you own a freehold property you own the land outright, but this is not the case with leasehold. A simple definition for ground rent is a payment made each year to the landlord (who does own the freehold) because the property is leasehold.

In England and Wales almost all land is owned on a freehold or leasehold basis. Whereas freehold property is owned outright and indefinitely, leasehold is owned for a limited period of time. As time reduces the number of years left to run on the lease, the value of your leasehold property diminishes.

In general terms, the shorter the remaining term the more expensive the lease will be to extend. When the term for which a lease has been granted expires, the lease comes to an end and the tenant must return the property to the landlord.

There is a legal process in place that provides a framework for leases being extended – a qualifying tenant of residential property is able to require the landlord to extend the lease by a specified number of years in return for payment by the tenant. Alternatively, there is sometimes a place for co-operative negotiations with the landlord. We can help choose the right way forward for you as there can be some technically difficult factors that benefit from advice, for example, it is important to consider the amount of the ground rent that will be charged by the landlord.