There are two fundamentally different forms of legal property ownership: namely Freehold and Leasehold.
What is Leasehold?
Leasehold means that you have a lease from the freeholder (who may at times be called the landlord) The lease is a contract granting use of the said property for a number of years. Leases are usually long term and can be 90 years or 120 years but can also be as high as 999 years. Leaseholders are usually given a contract (lease) with the freeholder, which sets down the legal rights and responsibilities of either side
The freeholder will normally be responsible for maintaining the common parts of the building, such as the entrance hall and staircase, as well as the exterior walls and roof. However, it is the responsibility of the leaseholder to assist with the up keep of this by paying an annual service charge (maintenance fee).
Did you know that your property/ Lease loses value the shorter the Lease term gets?
Did you know that the cost of extending your Lease also increases the lower your Lease term gets?
What does a lease extension mean
Your leasehold term is for a certain amount of years (such as 99 years). At the end of this term the property will revert to the freeholder A Lease Extension may be explained as being the continuation of a Lease beyond the original term.
It is thought that if the lease term falls below 80 years, this could make it difficult for the leaseholder if they want to sell their home or re-mortgage; as mortgage lenders will not consider a mortgage or re-mortgage application if the lease term is below 80 years. They feel this will increases their risk of lending against the home.
A lease extension is a statutory right for 100% leaseholders provided you meet the eligibility criteria detailed below. Shared owners cannot formally apply to extend their lease through this statutory right, but Gateway is still able to offer an informal lease extension service.
• you must hold the lease of the flat and this means hold a lease:
• The Leaseholder has owned the property for at least 2 years, any leaseholder who has owned the lease for less doesn’t have an automatic right to extend.
• The existing lease must be for a term exceeding 21 years
• Granted under the Social Home Buy Scheme with 100% ownership
• Granted under the Right to Buy or Right to Acquire rent to mortgage terms
• Own 100% of their home through a lease (100% leaseholder)
Lease Extension for Shared Owners
The Shared Ownership Lease was first introduced in the late 1970s and some of the leases issued by Gateway commenced in the mid 1980s. Most of these leases would have been issued for terms of 99 years and accordingly the remaining term would have reduced significantly.
As stated previously, Gateway is aware that this may create difficulties for those shared owners wishing to sell or re-mortgage their property. Leases with less than 70 years remaining on the lease are not attractive to mortgage. The lower the Lease the more costly it is to extend.
Shared ownership leaseholders have no Statutory right to a lease extension, although the Homes and Communities Agency (HCA) recommend Housing Associations consider granting extensions informally to shared ownership leases wherever possible.
Lease Extensions for 100% owners
The Leasehold Reform Housing and Urban Act 1993 and the Commonhold and Leasehold Reform Act 2002, grants a leaseholder the right to apply for a lease extension
The right arises once the leasehold has met the eligibility criteria listed below. If successful the Lease Extension can then be extended for a further 90 years from when it would have otherwise expired.
When should I extend my lease?
When your lease is over 80 years – It is recommended to take action in extending your lease before the lease gets down to 80 years as this will avoid marriage value, whereby the freeholder is entitled to significantly larger amount of premium. The closer the term gets to 80 years the less attractive it will be to any potential purchaser if you decided to sell.
When your Lease term falls below 80 years – its is very important to act quickly as possible as the cost of extending your lease is increasing rapidly
Lease has fallen under 70 years – This will potentially make your property un sellable. Mortgage lenders will be unlikely to lend against properties with lease below this level.
How do I benefit from a lease extension?
• A Lease extension will increase or at lease preserve the value of your flat
• Lease extension can give you security of where you live. If you allow your lease to run down and expire you will be allowing the lease and the property to revert to your freeholder upon the date of expiry. This will mean that you have no lease and therefore no rights to the property
• Lease extensions will make your flat easier to sell as when you extend your lease, your flat becomes much more attractive to prospective purchasers and lender. Most buyesr will be buying with the age of a mortgage so most motgage lenders have minimum years requirements as to the as to the length of a lease that they will consider providing a mortgage for.
• Lease extension can potentially remove ground rent.
Work needed to be carried out before you start.
• Checking Eligibility (including identifying the “competent landlord“- Gateway)
• Selecting and instructing professional advisers, i.e. a surveyor and a solicitor.
• Assessing the premium (valuation)
• Establishing the Finance
• Gathering the Information
• Preparing the Notice
• Preparing for the subsequent procedures
A lease may be deemed as a diminishing asset if not extended in time.
For more information call 0208 709 4300 or email Sales@gatewayliving.org.uk