Flats and houses owned on a leasehold basis diminish in value as lease lengths shorten to less than 90 years. Once your lease length decreases to less than 80 years, 'marriage value' will become payable to your Landlord to extend your lease. It can also be difficult to obtain mortgages on flats having lease terms of less than 70 years remaining.
Statutory Right To A Residential Lease Extension
The Leasehold Reform Housing and Development Act 1993 ( "the Act") provides leaseholders with the right to extend leases by 90 years for flats and 50 years for houses, subject to the qualifications detailed below.
Qualifications To Extend Your Residential Lease
Under Statutory Law you can extend your lease by 90 years on a flat, or 50 years on a house if you have owned and occupied your property for a minimum duration of 2 years and providing there was at least 21 years remaining on your lease at the time of purchase. If you meet these criteria a landlord cannot refuse to extend your lease.
Costs Of A Lease Extension
The cost of a lease extension will depend upon:-
- the remaining length of your current lease
- the value of the property
- the ground rent (if any) payable
- the value of any improvements undertaken by the leaseholder
Costs of Extending a Lease
As well as the cost of the lease extension itself, you will also need to consider:-
- Solicitor's fees
- Registration fees - your new lease will need to be registered
- Valuation fees
- Stamp duty - this will only be payable if the price being paid for the lease extension exceeds the stamp duty threshold limit, currently £125,000
- Freeholder's costs - by law you are required to pay the freeholder's legal and valuation costs for the lease extension.
In addition to the above rights where you are in a multi-occupied residential block of flats, you may wish to consider a collective purchase of the Freehold.
Purchasing Your Freehold
In respect of residential properties where there are at least two flats collective leaseholders may wish to purchase the freehold. In order to qualify to purchase the freehold the following criteria must be met:-
- At least two flats in the property
- A lease with in excess of 21 years
- At least 50% of the leaseholders must wish to proceed
The benefits of doing this are:
- Owning a share of the freehold with other leaseholders allows you to extend the lease to 999 years at nil cost.
- Owning the freehold enables you to control management and maintenance expenditure.
Reforms In Current Legislation
The Housing Secretary is currently reviewing the Leasehold system. In January 2021 proposals were put forward to allow for 990 year extensions to flats and houses and to abolish the need to pay marriage value to landlords. However, since this time the Government appears to be 'rowing back' from some of the reforms originally discussed. However, the following reforms are currently receiving consideration:
- A cap on ground rent of 0.12% of the property's value
- New rules on service charge fees and allowance of tenants to appoint their own management company.
In June 2022 Leasehold Reform saw the abolition of ground rents for newly constructed property.