When to extend your lease
Leasehold reform on the horizon is welcomed news but how does it affect when to extend your lease? We take a look.
What is a lease extension?
If you own a leasehold property, a lease extension refers to the legal agreement of extending the term of your lease. If you don’t extend your lease, at the end of its term the property will revert to the freeholder. It is a totally unfair relic of feudal laws, which you avoid by extending your lease.
What is the lease extension new law?
The much-welcomed news that leasehold reforms are on the way was announced in November 2023 with the introduction of the Leasehold and Freehold Reform Bill.
While it fell short of abolishing leasehold completely it brings a swathe of improvements including making it cheaper and easier to extend your lease or buy the freehold. It is hoped that some of the changes could save leaseholders £1,000s, especially those who own properties with short leases.
But a word of caution: there is no guarantee that all the reforms will make it into the final Bill, that the Bill will get Royal Assent or that it will be passed before the next General Election. Plus there is a risk that depending on the outcome of the Bill, the cost of extending your lease may actually increase. Read more about proposed changes and find out the latest in our guide on Leasehold reform.
Should I extend my lease now?
If you’re a leaseholder wanting to know when to extend your lease, you’ll want to know what these proposed changes mean for you and whether you should wait to extend your lease. As we wait to see what happens with leasehold reform, when to extend your lease will depend on your circumstances – read on to find out more
When to extend your lease
With the uncertainty of when and if leasehold reform will happen, we spoke to Linz Darlington of lease extension specialists Homehold about how when to extend your lease will depend on your circumstances. For example:
For example:
- Lease length: 80 to 82 years – It’s almost certainly advisable to extend. It’s unlikely that the reforms will be through before your lease drops below the “80-year mark” at which marriage value kicks in making it more expensive.
- Lease is above 82 years – It’s up to you: it is likely be made cheaper by the reforms, but it might also made more expensive. If you’re comfortably over the threshold, say 100 years, you could wait to see what reforms come.
- Ground rent is high: Consider waiting because it may be made cheaper for you in the future.
- Lease below 80 years: Again, you may wish to consider waiting as it might be made cheaper for you in the future by the abolition of marriage value.
- If you are planning on selling your leasehold property in the near future. If you have under 90 years left on your lease it may worry potential buyers. While you can sell a property with a shorter lease, you are likely to lose money on the value of your home.
However, everyone’s personal circumstances are different. So getting expert advice is recommended.
Why would I not want to extend the lease?
Depending on your circumstances, it might not be worth getting involved in the expense and hassle of extending your lease if:
- You have a long lease already (over 90 years), there is probably little benefit to extending it (unless you want to get rid of the ground rent)
- You are strapped for cash and mortgaged to the hilt. Lease extensions can be very expensive (many thousands of pounds), so you need to work out first whether you can afford it.
- You are only planning to be in the property a couple of years before moving on (unless you need to extend the lease to make it attractive to buyers)
- You plan to buy the freehold in its entirety (owning the freehold of a house makes the question of extending the lease redundant; in the case of flats, leases may still need to be extended but if you and your neighbours are the freeholder it is easier and cheaper to do this)
- You are not likely to outlive the term of the lease. It can be quite rational just to let your heirs inherit the problem
When to extend your lease to avoid costs rocketing
As we explain above, leasehold reform is on its way – we hope. But until and unless that happens, as the lease gets shorter, the cost of extending it gets more expensive at an exponential rate. This is particularly true for leases of less than 80 years, where the cost of lease extension really starts to bite.
At about 60 years, the cost of extending the lease increases by about 1% of the value of the property each year – i.e. if the property is worth £250,000, the bill for extending the lease will go up about £2,500 a year. When the leasehold gets down to zero years, it is practically valueless as the whole property reverts to the freeholder (though for a certain period after expiry of the lease you may still have a right to extend the lease).
Am I allowed to extend the lease on my flat?
Yes – if you’ve owned the property for at least two years, most flat owners are legally entitled to demand a 90 year extension to be added to your existing lease from your freeholder. You only have to have owned the property, so you can still apply if you’ve been living somewhere else. If you have owned the property for less than two years then:
- You can still enter a non-statutory agreement with the freeholder, if you can persuade them. Although be aware that informal lease extensions like these can come with risks. See our step by step guide to lease extension for more details of why a formal (or statutory) lease extension offers most protection.
- If the person you bought your property from had started the lease extension process, they might be able to continue it – but you will have had to ensure that the right was passed on to you when you bought the property
If none of this applies – you simply have to wait two years.
However, under proposed leasehold reform, the standard leasehold extension term will increase to 990 years. And the requirement for new leaseholders to have owned their house or flat for two years before they can benefit from these changes will be removed.
