Should I extend my lease now or wait?

By James Khakpour-Smith

Partner

16 May 2024

Article Insights

I would like to extend my Lease but I am unsure if I should wait until the government passes its leasehold reform legislation. Should I extend now, or wait for the government to pass its leasehold reforms?

Existing legislation (the Leasehold Reform Housing and Urban Development Act 1993) allows leaseholders of flats to extend their leases by an additional 90 years. The government promised in the King’s Speech to give leaseholders the right to a 990-year lease extension along with other amendments to make the lease extension process easier and less costly for Tenants.

The answer to the above question can be arrived at by asking yourself the following questions; do you need to extend your lease because its unexpired term is soon to drop below 80 years? Do you need to extend your lease because you need to sell or mortgage or remortgage your lease soon? If the answer is “yes” to any of these questions, then you should consider extending your lease now, notwithstanding the proposed government changes. If you do not answer “yes” to any of these questions, then you should consider waiting until it becomes clear if, how and when the proposed government changes are implemented.

The reason you should extend your lease now, if your lease terms drops below 80 years soon, say within the next two years, is because of technical valuation reasons relating to the increase in value of a property once its lease has been extended, which mean that the lease value significantly increases once the unexpired term of the lease drops below 80 years. This means that if your lease drops below 80 years the premium that you pay to extend your lease increases significantly, it often it doubles, when compared to the premium you would have paid if you had extended before the unexpired lease term dropped below 80 years. Crucially for these purposes, this increase in premium that you will have to pay as a result of your unexpired lease term dropping below 80 years is likely to outweigh any financial gain you will get from waiting for the proposed government changes before extending your lease.

The reason you should extend your lease now if you need to sell or mortgage or remortgage your property soon, is because the implementation of the proposed government changes is likely to take months if not longer and it is not even certain that they will be implemented fully or at all, for example if we have a change in government or various interested groups successfully lobby against some or all of the proposed changes. Such lobby groups have already challenged government proposals elsewhere in the same area of law to remove the right for freeholders to charge any ground rent.

However, if your lease is not on the cusp of dropping below 80 years and you do not have other reasons to sell or mortgage or remortgage your property soon, then you are likely to benefit from waiting to extend your lease to see if and how you can take advantage of the government changes for Tenants extending their leases.

If leasehold reform finally makes it onto the statute books there will be some people who have already extended and will be disappointed, they didn’t wait. Equally there will be some people who waited and wish they hadn’t. With lease extensions there isn’t a ‘one-size fits all’ decision to make, so you must consider your own circumstances and intentions now and the rules as they stand now before deciding what to do.

At Taylor Walton we have an experienced team of practitioners with an accredited and proven track record in acting for Tenants and Landlords in Leasehold Reform for many years and we would be delighted to advise interested parties of the best way for them to maximise their Property interests within the complex and changing legal landscape. Please contact our Commercial Property Department here.

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Please note that the contents of this article are intended solely for general information purposes and should not be considered as legal advice. We cannot be held responsible for any loss resulting from actions or inactions taken based on this article.