Extending your lease
Who has the right to extend their lease?
A leaseholder who satisfies the required conditions has a 'right' to be granted a new lease for an additional term of 90 years at a 'peppercorn' rent (a very small payment). A shared ownership leaseholder can also seek to have their lease extended; however, they will continue to pay the rent on the unsold share.
Qualification for extending a lease
In order to be able to claim the right to a leasehold extension, you must satisfy certain conditions:
- The existing lease must be for a term exceeding 21 years. There is no requirement that any particular period remains unexpired.
- You have owned the property for two years or more. If you have owned the property for less than two years, you do not have an automatic right to extend the lease.
Shared ownership leases
In the case of shared ownership leases, the cost of extending the lease can mean that the better option may be to buy further shares in the property or staircase out if possible. If you decide that extending the lease is the best option, as the lease remains a shared ownership lease, you will still have to pay for the share not purchased.
If you live in a flat, the issue of the lease getting shorter will still remain following final staircasing (when you buy more shares and own one hundred percent of your home).
Important points to note:
It is important you contact us before your lease falls below 80 years
When the length of a lease falls below 80 years, the cost of a lease extension increases dramatically. As a result, a lease at 80 years or less can often be harder to sell. Mortgage lenders generally will not lend on properties where the lease is so low that it expires before the end of the mortgage. This makes remortgaging and selling your property difficult and may cause delays in these transactions until your lease has been extended.
You must seek your own legal advice
It is essential to take legal advice before deciding to proceed with a lease extension. The advice should cover the legal, valuation and financial aspects of the proposed extension. You must make sure you have sufficient information and advice to decide whether a lease extension is the correct route. For shared ownership leases, the need to extend a lease for saleability and mortgage requirements always needs to be balanced against the issue of whether it is better to staircase. It is important to understand that extending the lease can, depending on the market at the time, increase the value of the property. This means that staircasing in the future could be more expensive. You also should consider the possible effect of rent increasing after staircasing?
Timescales
Where a lease extension proceeds informally, shared owners, leaseholders and their advisers need to be clear about the timing of any processing of an application from the outset. It is often the case that leaseholders are in the process of selling or re mortgaging where time is short. While all efforts will be made to take into account individual circumstances, no guarantees can be given as to timing.
Costs
Leaseholders need to be clear at the outset of the likely cost of each application.
Proceeding informally or formally
A right to a lease extension is a statutory right for one hundred percent owned flats as long as you meet the qualifying criteria. Shared owners do not have a statutory right to have a lease extension granted. However, whether or not you, as a leaseholder, satisfy the conditions for the formal procedure does not prevent you from trying to agree terms informally with Sovereign.
Informal
Outright leaseholders and shared ownership leaseholders - This is offered by Sovereign and may be quicker and less costly in terms of legal fees. To proceed under this route you need to complete the informal procedure form and send this back to your Customer Specialist - Homeownership, so that we can instruct the valuer on your behalf.
Formal
Outright leaseholder only - This is prescribed by law; to proceed by this route you will need to serve a statutory notice under section 42 of the Leasehold Reform Act 1993. This should be sent to your Customer Specialist - Homeownership, who will record this and forward you our solicitor's details so that the formal process can commence.