Leasehold home ownership: buying your freehold or extending your lease

Leasehold home ownership: buying your freehold or extending your lease

As the owner of a leasehold property you only own the property for a fixed period of time. You will have an agreement with the landlord, who owns the freehold, which outlines how many years you will own the property and what your rights and responsibilities are. When your period of ownership comes to an end ordinarily, the ownership will return to the Landlord. However you may be able to negotiate a lease extension with the Landlord or offer to purchase the freehold.

If you own the leasehold of a flat you can ask the Landlord for a lease extension at any point during your ownership if you meet the criteria set out in the legislation. As part of the criteria the lease must be for a term of at least 21 years, you must have owned the lease for at least two years and it is not a lease of an excluded building. In return for payment of a premium you will be granted a new lease for a term equal to the unexpired term of the current lease plus a further 90 years at a very small rent and on the same terms as the existing lease.

The premium is based on a complex valuation process which considers the amount by which the open market value of the landlord's interest in the flat is reduced by the grant of the extension, any compensation which may be due to the Landlord if the lease extension lowers the value of other property they may own and the difference between the value of the Landlord's and Tenant's interest in the flat with the existing lease versus the new lease.

The Law Commission published a consultation paper on 20 September 2018 (Leasehold home ownership: Buying your freehold or extending your lease, Consultation Paper No 238) which identified leasehold law as an area which may benefit from reform. As part of this consultation they found the valuation process to be complex and difficult to understand. The Government has asked the Law Commission to review the lease extension process to make it simpler, although a report was released on the valuation of lease extensions on 9 January 2020 which provided suggestions for reform the report did not lay out the Law Commission's desired way forward.

The Law Commission suggested three alternative ways to value the premium which would make it cheaper for leaseholders whilst ensuring sufficient compensation is provided to Landlords to reflect their interest in the freehold. They believe that all of their suggestions would clarify and simplify the law making the lease extension process simpler to follow. However, the Government has not set any time scales for consideration of these possible reform structures. Whilst there is no time frame for consideration it remains important for many leaseholders to extend their lease as soon as possible to make their property marketable.

If you are considering extending your lease and would like to begin the process before further comments have been made by the Government it is important to obtain legal advice on the process and advice from a surveyor on the valuation of the premium payable. If you would like to discuss your options further and enquire as to whether you are eligible to bring a lease extension claim please contact our dedicated Client Relations Team on 01603 693500 or email us using the 'Make an enquiry' form on our website. Appointments available at our Norwich, North Walsham and Sheringham offices.

For more information, please visit our dedicated webpages on lease extensions, lease variations and leasehold sales and purchases.

*This article is provided for general information purposes only and does not constitute legal advice or other professional advice.