You may be living in or considering purchasing a leasehold property. A leasehold means you have a lease from the freeholder to use the property for a fixed number of years. As the end of the lease approaches, you may be wondering what happens next.
Understanding the leasehold process can help you make informed decisions about extending your lease or selling the property. This blog will discuss what happens when a leasehold expires and what options are available to you in this scenario.
What is a leasehold property?
A leasehold property means you do not own the land or building outright. Instead, you purchase a lease for the rights to live in the property for a set number of years, typically between 99 and 125 years when first issued. The freeholder will retain ownership of the property itself.
Flats and apartments are commonly leasehold. Houses can also be leasehold, often in the case of new builds. With a leasehold, you must pay ground rent to the freeholder for the duration of the lease and follow any terms or restrictions in the lease document.
What happens when a leasehold expires?
As the leasehold expiration approaches, the property value diminishes if the lease is not extended. This makes it harder to sell or mortgage.
Once the lease ends, the property ownership returns to the freeholder. At this point, they can take possession of the property or grant a new lease. However, you would lose the right to occupy the property once the lease expires.
Suppose you intend to continue living on the property in the long term. In that case, you must extend the lease before it runs out.
Can I extend my lease?
In most cases, yes, you can extend your residential leasehold. As a leasehold owner, you have statutory rights to renew your lease for an additional 90 years. This is known as ‘enfranchisement’.
You can extend your lease once you have owned the property for two years. The process involves paying a premium to the freeholder and demonstrating that you have followed the terms of your existing lease.
How much does it cost to extend my lease?
The exact lease extension cost depends on several factors, primarily the remaining length of your current lease. The shorter the lease when you extend it, the higher the premium. This reflects the diminishing value of having fewer years left.
Depending on the specific property value, you’ll likely need to pay thousands to tens of thousands of pounds or more to extend your lease. A surveyor can determine the precise lease extension price based on market valuations. You and the freeholder agree on this cost.
Can a landlord refuse to extend the lease?
For residential properties, the law usually states that a freeholder cannot refuse a request to extend your lease if you meet qualifying criteria.
However, a landlord does have the right to refuse lease extension requests for commercial properties under certain circumstances.
So, provided you have owned and lived in the home for 2+ years and meet other statutory requirements, a residential freeholder cannot lawfully reject your request for the lease extension.
Should I sell my house before the leasehold expires?
If your remaining lease term drops below 70 years, your property value can be impacted noticeably. At this point, you may also have difficulty securing a mortgage.
You should extend your residential lease once it reaches 80 years remaining. This will retain your home’s marketability for resale.
If you wish to sell sooner rather than extend, it is wise to do so while you still have a reasonably long lease. This avoids value reductions from an expiring lease and lease extension costs, which could affect your sale proceeds.
Common questions on extending leaseholds
If you consider extending your leasehold, you likely have many questions about the implications. Here are some frequently asked queries to provide more insight:
Can extending the lease add value to my property?
Yes, extending your residential lease can typically increase its future sales value. Longer lease terms often attract higher offers, as buyers wish to avoid near-expiry leases.
What costs are involved with lease extensions?
The main costs are professional fees, such as lawyers and surveyors, and the lease extension premium you’ll pay the freeholder. Expect total costs from £2,000-£10,000+ depending on property values.
How long does a lease extension application take?
The process is usually completed within 2-6 months of submitting your formal legal notice of lease extension to conclude the deal. However, factors like negotiating the price and paperwork can impact timeframes.
Can I sell my home during the lease extension process?
You can sell the property after formally applying to extend the lease. The lease extension application will be transferred to the new owner if a sale is completed before the extension is concluded.
What happens if I can’t afford the lease extension?
If you cannot afford to extend the lease, you can try to sell the property with a short remaining lease or surrender it back to the freeholder when the lease expires.
Can my freeholder block or delay the lease extension?
There are statutory limits on reasonable timeframes for residential properties. As long as you meet qualifying criteria, it is difficult for a freeholder to lawfully obstruct extending your lease.
Deciding whether to extend or sell when the lease dwindles
Knowing what happens as your leasehold expires prompts essential decisions while you still have sufficient time to act. Key options to weigh with a lease under 80 years remaining include:
- Extend the lease to retain ownership: This makes sense if you wish to occupy the home long-term or sell later with an increased value from more extended leasing. It requires an upfront financial outlay.
- Sell the property sooner: This allows you to benefit from selling before the remaining lease substantially erodes value or becomes an obstacle to getting a buyer’s mortgage. It also avoids lease extension costs.
- Surrender the lease: If funds are unavailable to extend or sell, you may have to cede rights back to the freeholder when the contract ends. Gets no financial return for the property lost.
Most leaseholders choose to extend their lease or sell promptly. With prudent planning around lease expiry, you can avoid being forced to walk away from the property. Seeking professional guidance can assist in navigating decisions tailored to your situation.
Other leasehold considerations
Beyond knowing what happens when your current lease expires, some other relevant leasehold factors include:
- Marriage and inheritance: Lease terms usually allow spouses inheriting a property to assume lease ownership.
- Subletting: You usually need consent from freeholders to sublet, which they could refuse or attach conditions to.
- Home improvements: Some more significant works require freeholder input and approval as they retain ownership.
- Owning abroad: Other countries can view leaseholds differently, so get destination-specific advice if buying overseas.
While leaseholds sound complex, specialist brokers and conveyancers can guide you through legal intricacies like inheritances, renovations, lettings, and more based on your property.
Knowing as much as possible about leasehold expiry and provisions is wise to make informed choices. Seek professional support whenever needed to progress the optimal path for your situation.
