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Lease Extension

Why extend a lease?
Once a lease falls below 80 years it becomes less attractive to buyers, also to lenders.
This is because once the term remaining on the lease is under 80 years, the landlord is entitled to be paid compensation for granting the lessee more years. This compensation, which is called “marriage value” is to reflect the fact that the lessor will have to wait longer for the lease to expire. For every year that the lease falls below 80 years, the amount payable to the lessor to extend the lease, will increase. Therefore, the earlier the lease is extended, the cheaper it will be for lessees.
Many lessees now extend their leases when they still have over 90 years left so that the length of the lease is not an issue on resale, also because they will have to pay the lessor less to extend at that point.

How to extend your lease?
A lease extension is actually a surrender of the existing lease by the lessee, followed by an immediate re-grant of a new lease to that same lessee on the same terms but for a longer length.
If the lessee has a mortgage this is transferred to the new, extended lease.
Lessees can negotiate terms for an extension directly with their lessor. They can agree any length of extension and can take the opportunity to add new terms to the lease or change the rent or other payments due under it.
Alternatively, the law gives most (though not all) lessees, the right to compel the lessor to grant them a lease extension of a further 90 years at a nil ground rent. This is called a statutory lease extension. It is still possible to change other terms in the lease but only if the lessor agrees.
There are advantages and disadvantages to using either route to extend a lease. We can consider these with you in the context of your particular circumstances.
However, some reasons to consider a statutory lease extension include the following:
The landlord cannot refuse to extend a lease if a lessee satisfies the criteria and follows the correct procedure, and it cannot withdraw or change its mind or the terms at the last moment. There is therefore little scope for the landlord to offer a shorter extension or impose new more onerous terms in the lease.
There is a set formula to decide the purchase price payable by the lessee and limit the type of costs that the landlord is entitled to recover
If an agreement cannot be reached it is possible to apply to the Tribunal who will then set the terms of the lease extension including price.
A statutory timetable must be followed which provides certainty.
If there is an intermediate lease the statutory route offers a simplified and far neater method of extending a lease than an extension outside the LRHUDA 1993.
If the lessee wishes to sell, it is possible to serve the S. 42 trigger notice after exchange and assign this to the buyer before completion. The buyer can then extend even if it has not been registered at HM Land Registry for the necessary two-year period.

IMPORTANT UPDATE: This is an area the Government has highlighted for reform.
Suggested changes include a cap on the landlord’s costs, the abolition of the requirement to pay marriage value and the right to a 990-year extension not just 90 years.
These are controversial proposals and we do not know if or when any change may be implemented.
A link to the Government department announcing these proposals may be found here: