Extending leases and why it is an important consideration
We’ve asked one of our panel Mortgage Advisers, Hillcrest Property Solutions, to help us explain the ins and outs of lease extensions:
Most Shared Ownership leases will be based on the standard Homes and Communities Agency (formerly Housing Corporation) model Shared Ownership lease. Earlier leases would have been issued on the basis that the term was for 99 years though most recently leases are now issued on the basis of the lease agreements being a 125 year term from commencement. Leaseholders should be aware that when a lease becomes “short” its value reduces and may have a direct impact on the value of the property being sold as well as the ability to raise a mortgage against that property with a short lease. In general it is understood that when a lease falls below 75-80 years it is considered to be a “short” lease and may create difficulties for a leaseholder if they wish to sell or remortgage.
For Leaseholders to be able to claim their right to extending their lease, certain conditions must be fulfilled:
- The existing lease term must exceed 21 years though there are no particular requirements on the period of unexpired lease. For this purpose, a tenancy with a covenant providing for perpetual renewal is deemed a qualifying lease
- Unless the Leaseholder has owned the property for a minimum of two years they would not hold the automatic right to extend the lease. Lease extension is a statutory right for 100%-owned flats
Short Leases – what to do next?
Leaseholders who satisfy certain conditions have a “right” to be granted a new lease usually for an additional term of 90 years. A Shared Ownership leaseholder can also have their lease extended; however they will continue to pay the rent on the unsold share in the same way as this is a fundamental clause of the lease. Whichever route is taken, Leaseholders are always advised to consult with their legal advisor on the best option before proceeding.
What costs may be involved if you decide to extend your lease? Lease extension costs depend on the lease that is currently held and the procedure you choose to follow (figures shown below are approximations based on a standard Shared Ownership lease).
For the Informal procedure:
- Housing Association’s Administration fee
- Valuation fee, approximately £300 + VAT depending on the surveyor you appoint
- The Housing Association’s solicitor costs for a standard lease extension: £450 + VAT
- The Housing Association’s solicitor costs for a property with a Head Lease: £700 + VAT
- Deposit to the Housing Association of £250 or 10% of the lease extension value, whichever is greater
For more information about lease extensions, download our handy guide.
If you wish to speak to a member of our team about a lease extension, send an email to email@example.com.