What is a lease and when should you extend it?

Property solicitor Sam Smith of Streathers, Crouch End

Property solicitor Sam Smith of Streathers, Crouch End - Credit: Nigel Sutton

If you own a property with a lease of 90 years or less, you will need to renew it if you want to avoid paying a fortune or wish to sell the property.

I am selling my flat and have been told I need to extend my lease. Why is this and how do I go about it?

There is a big difference between owning a house and a flat. In all but a very small number of cases the legal title to a house will be freehold. A flat on the other hand will almost always be a leasehold title.

This is partly a relic of our feudal system and partly because we have not yet been able to devise a better way of setting out the responsibility for upkeep of a shared building other than through splitting it between freehold and leasehold titles.

If you do own a leasehold flat then the question of how many years there is left to run on the lease is all important when you come to sell. The term of the lease will have been fixed when it was originally granted. Leases are usually granted for 99 years although 125 years is also now quite common.

With each passing year the lease on your flat will shorten; as it approaches 90 years you may wish to consider taking action. If your lease falls below 80 years it becomes very expensive to extend, which in turn reduces the saleability of your property.

Since 1993 it has been possible for a flat owner to extend their lease term by following a procedure set out in the Leasehold Reform Housing and Urban Development Act 1993. If you have owned the flat for two years or more you will be entitled to an additional 90 years to be added to the lease term and for the ground rent payable to be reduced to a peppercorn (i.e. nothing).

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There are very strict timeframes and procedures to follow. It can also be quite an expensive process. It is certainly one in which the flat owner will need the assistance of a surveyor and a solicitor who are both experienced in this tricky area of the law.

This whole statutory process can easily take a year to resolve so it is always advisable to be aware of how long you have left on the lease of your flat. There is limited appeal in putting a property on the market for sale with too short a lease, particularly one with less than 80 years, as you would be seriously limiting the number of people available to purchase it. Most mortgage lenders will also decline to lend monies on shorter leases. There are however alternative ways of dealing with a short lease which can be fully explained by your solicitor.

You can, for example, negotiate directly with the freeholder. It could be possible to extend the lease back up to a satisfactory length perhaps with a slightly increased ground rent. This could end up cheaper and quicker than following the statutory process and could be a good idea if you are going to sell the lease shortly.

Another alternative is to get together with the other flat owners in your building. If a majority of you wish to acquire the freehold of the building then you can do so by following a similar procedure to that outlined above for extending your lease. Once a freehold purchase has completed then you could all grant yourselves new 999 year leases and banish the problem of the lease length.

In such circumstances it is often said that the property is “share of freehold” as opposed to leasehold or freehold. However this is just a term used to describe a leasehold property that also includes a share in the freehold. A share of freehold in this sense is not the same as owning the freehold of your own house. As a tenant, you are still bound by the terms and conditions of your lease, although you will have set the terms of your lease with the other freeholders.

If you already own a share of the freehold it is still important to ensure that the lease length remains attractive to the market for the same reasons as above. The fact that you own a share in the freehold will not compensate for the fact of a short lease. You should be particularly wary of this in circumstances where all of the tenants are given the opportunity to extend their leases, but you turn this opportunity down.

If you are concerned about the length of your lease then you should seek professional advice. A qualified solicitor will be able to explain other options to you and advise on the most appropriate course of action.

Do you have a property question for Sam? Email it to ham&high.property@archant.co.uk or tweet @hamhighproperty