Lease Extensions Council Property

When you decide to sell your flat, any lease approaching 80 years or below will create difficulties on sale as a purchaser’s solicitors will regularly advise of the potential cost and difficulty of saleability to their client.

This usually creates a delay while enquiries are made to your solicitor and then to the Freeholder who in this case will advise that they will only entertain a lease extension by a statutory route (ie. you have to serve a Notice-and this can take up to 9 months to conclude).

These difficulties may result in your purchaser requesting a reduction in price, or more likely withdrawing from the purchase.

Even if you were to offer a reduction in price, the buyer has no guarantee that he/she could acquire a lease extension from the Freeholder subsequently, as a flat owner will have to have owned the flat for a minimum of two years before qualifying for a lease extension.

The cost of the lease extension will certainly increase the shorter the lease becomes.

This can also apply when you want to re-mortgage your flat. Increasingly, lenders are insisting on a lease extension when the term has fallen below 85 years.

Therefore, obtaining a lease extension (if your lease is around 80 years, or less) will protect the value of your flat and improve saleability.

Most flats and a few houses in England and Wales are owned under long leases, with long in this instance meaning longer than 21 years.

Because of a legal difficulty in making obligations run with successive owners of the property, the lease is a useful device as every time the property is bought and sold, all of the existing obligations in the leasehold contract are transferred to the new owner.

In shared property the leasehold contract sets out what parts of the building belong to the leaseholder (usually, but not always, these are the internal parts of the property itself). Normally the structural elements and exterior belong to the freeholder. This person is generally the freehold owner.

Generally speaking, the parts of the building outside the property itself, including the ground beneath it and the space above, belong to the freeholder. The one disadvantage of this system is that a lease is a ‘time limited’ interest in land. Therefore, as time goes on the length of the lease (and the capital value) diminishes.

The lease is of a predetermined length and will eventually expire. When it runs out, the freeholder can take back the keys of the property. In reality, this day seldom comes because circumstances will force the owner to do something about the diminishing lease (and there are rights to remain in occupation paying a rent). But theoretically the property will revert to the ownership of the freeholder, who is sometimes called the ‘reversioner’ as a result.

There are no two ways about it. The leasehold flat or house is a wasting asset as a result of the shortening lease. The closer the lease gets to zero years unexpired, the more it reduces the value of the property. Of course, in a rising market, this is more than outweighed much of the time by the appreciation in the value of the property. In a static property market, a diminishing lease will gradually reduce the value of the property, all other things remaining equal.

The right to a Lease Extension is provided by the Leasehold Reform Housing & Urban Development Act 1993 (as amended) and is a grant of an extension to the existing lease term for a further 90 years.  Therefore, if your present lease has 75 years to run, you will end up with a lease of 165 years.

You are also entitled to extinguish your ground rent, so after the grant of a lease extension you pay a peppercorn rent (i.e. rent free) throughout the entire existing and extended term.

You can now sell or re-mortgage your flat with the lease term or ground rent being an issue.

There are certain qualifications, but the main ones are as follows:

1) The lease has to be in excess of 21 years when originally granted

2) You have to have owned the flat for a minimum period of 2 years