Reforming the law on Leasehold Reform and COVID 19: Should I still be looking to extend my lease?
News article published on: 30th April 2020
The first questions to address for most leaseholders are: What is a lease? And, when and why should you consider extending the lease of your property?
If you purchase a leasehold property you purchase a right to use the property for a fixed period that is stipulated in the lease, this is known as the “Term”. When the Term ends, the ownership of your property reverts to the freeholder. The remaining Term of a lease affects the value of the property: the shorter the lease, the less the property is worth.
As a lease gets shorter it will become more expensive to extend and the key turning point in the Term of a lease is the 80 year point. When the unexpired years remaining on the lease falls below 80 years, marriage value is taken into account which has the effect of making the premium for the lease extension much more expensive. Therefore, where possible, leaseholders should make sure they extend their lease before the remaining years left on their lease falls below 80 years.
Leasehold extensions – wait or hold on?
However, secondly, in the strange times we all now find ourselves in many leaseholders will be asking themselves whether they should still be extending their leases now or waiting?
Many leaseholders have been holding out for the planned reforms to this area of law. The Government are currently considering reform to the lease extension and enfranchisement process and the Law Commission were due to finalise their recommendations in spring 2020. However, with the current COVID-19 pandemic it seems likely that this Law Commission report will be delayed and that in turn the Governments urgent priorities will see leasehold reform also delayed for an uncertain period of time.
Those that were waiting for leasehold reform are likely to be waiting for this reform indefinitely and they should be mindful of the unexpired term of their leases to make sure the key 80 year point is not missed.
COVID-19 also means there are some practical elements of the lease extension process that need consideration during the current pandemic. For example, valuations would normally be carried out to advise a leaseholder of the likely premium payable for the lease extension which would normally involve a valuer having access to the property. Often accessing a property is not possible due to social distancing measures, however, valuers may be able to carry out desktop valuations to allow lease extensions to proceed in the usual way. Solicitors are able to draft and send notices for signature from home, etc so despite the different working environment there is a way to progress with lease extensions as usual.
Government guidance on leasehold extensions
There has been no guidance from the Government that any of the terms of the Leasehold Reform, Housing and Urban Development Act 1993 that applies to lease extensions will be amended during this time. Consequently our understanding is that there will be no pause on age of a lease or any deadlines under the Act so time is still of the essence for lease extensions.
Overall if you have a lease with 85 years or less remaining our current recommendation would be that you consider extending your lease as soon as possible. Those with 85 years or more may also still want to consider extending their lease in the short term depending on their plans for the property.
Blog post written by Amber Larner-Bird