Yes. Absolutely yes! You should always extend your lease to a reasonable period of time if you can afford it. Otherwise, the property will revert back to the freeholder at the end of the lease and you and your family will be left with nothing. Chances are, you have many more questions about the subject. Let’s cover all the major ones.
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Under the 1993 Leasehold Reform Act, all owners of leasehold properties are legally allowed to extend their lease agreement for up to an additional 90 years IF they have owned said property for a minimum of two years. There is no residency requirement, so you can be living elsewhere and still apply for the extension.
If you have owned the leasehold property for less than two years, you must seek the agreement of the freeholder (property owner) before you can apply for an extension.
As noted above, extending the lease prevents you and your family from losing the property at the end of the lease period. However, more specifically, you should already be planning for an extension if the lease period ends in less than 80 years. If the lease ends in less than sixty years, then you should already be knee deep in the extension process.
This should be done not only to protect your family, but also for financial reasons. Property prices decline considerably once the lease is down to less than 60 years. Not only will the sales price be significantly lower, you might even be able to sell house fast as potential buyers might be concerned about the cost of extending the lease. Even banks will not entertain a mortgage application if the lease period is below 50 years.
To extend your lease, you will have to pay a premium to the freeholder. The premium calculation is quite complex, however it is relatively affordable as long as the length of the lease do not go below 80 years. For a £250,000 property, a 90-year extension will cost around £5,000.
However, if the lease has gone below 80 years, the renewal cost will skyrocket as leaseholders are required to pay 50% of the property’s “marriage value” on top of the standard renewal fee. “Marriage value” is the estimated increase in value of the property after the extension. By the time the lease drops to less than 60 years old, renewal would cost as much as 1% of the property value per year. That means, if a home is valued at £250,000, the renewal would cost £2,500 per year, or £25,000 for every ten years. You can use the reliable auto-calculator of the Leasehold Advisory Service to calculate the probable cost of the extension.
In addition, you should also expect to pay professional fees of around £2,000 to £3,000 to apply for the extension.