What is a lease extension?
To understand lease extensions, it’s first essential to know what a lease is. A lease is a legally binding contract between a landlord and a tenant which forms an interest in a property. In contrast to a freehold property, the interest made by a lease is for a fixed term.
The lease will outline the rights and responsibilities one has as a leaseholder, alongside the rights and responsibilities of the landlord. The lease provides the leaseholder with the right to occupy and use the property for a fixed period of time – more commonly known as the term in the real estate market – until the lease reaches its end.
When the lease term is up, ownership of the property goes back to the landlord – commonly referred to as the reversion – meaning that the leaseholder no longer has any say over the property.
Which leads us to the lease extension. An extension is the process of adding years onto the lease, consequently extending the time the leaseholder has to occupy the property before it goes back into the ownership of the landlord.
How to get a lease extension
This can be done either by going straight to the landlord to negotiate an extension or by serving a Section 42 Notice. For the latter option, it’s usually recommended that the leaseholder has a qualified solicitor to do this on their behalf. For further information on how to get a lease extension, this guardian article may prove useful.
There are also options such as a loan agreement, which can help navigate the complexities of owning a property as a leaseholder. Specialist solicitors such as https://www.parachutelaw.co.uk/loan-agreement can be helpful when looking into this.
Reasons to get a lease extension
There are many reasons to extend a lease that can benefit both the landlord and the tenant under the right circumstances.
For starters, extending a lease with less than eighty years remaining may significantly increase the value of the property.
If the lease is short, not many mortgage lenders will be ready to lend against it. This will likely make it harder to sell the property as potential buyers will be severely limited, making cash buyers the most available option.
With under eighty years, the lease attracts marriage value, meaning that if it is extended, the freeholder is entitled to fifty per cent of the value that the extension adds to the property.
