What is a leasehold extension?

A leasehold extension is the process of extending the lease term of a property held on a leasehold basis. It helps maintain the property's value and desirability. Leasehold extension legislation allows leaseholders to extend their lease, ensuring the property remains attractive for sale or mortgage purposes.

How long is a leasehold extension ?

The length of a leasehold extension can vary depending on the jurisdiction and specific circumstances. In some countries, such as the United Kingdom, leasehold extensions are typically granted for an additional 90 years beyond the remaining term of the existing lease. However, it's important to note that leasehold extension regulations can differ, and it's advisable to consult local laws or seek professional advice like leasehold valuations for accurate information regarding leasehold extensions in a specific jurisdiction.

What are the benefits of lease extension ?

Extending the leasehold of a property offers benefits such as increased property value, improved marketability, easier access to mortgage financing, peace of mind and security, the avoidance of escalating costs, and more control over property management.

What happens to leasehold property after 99 years ?

After 99 years, the leasehold property typically reverts back to the freeholder, unless the lease is extended by the leaseholder. The ownership of the property, along with the land it is built on, returns to the freeholder once the lease expires. As a lease approaches its expiration, the property’s value may decrease, making it more challenging to sell or mortgage. It is advisable for leaseholders to consider extending their lease well before it reaches the 99-year mark to maintain the property’s value and their ownership rights.

Why choose leasehold Valuations for Lease extension or Buying Freehold ?

1. Fair Price: A leasehold valuation ensures you pay a fair price for a lease extension or freehold purchase.2. Increased Property Value: Extending the lease or buying the freehold can potentially increase your property’s value.3. Cost Savings: Accurate valuation helps minimise future costs like ground rent.4. Stronger Negotiation: A valuation report strengthens your position during negotiations with landlords.5. Legal Compliance: Valuations ensure you meet legal requirements for lease extensions or freehold purchases.6. Future Planning: Valuations help you plan for selling or passing on the property to future generations.7. Expert Advice: Engaging a valuer provides access to their expertise and guidance.8. Mortgage Support: Valuation reports improve your mortgage opportunities for lease extensions or freehold purchases.

How much does it cost to renew a leasehold ?

The cost of renewing a leasehold in the UK can vary depending on various factors, such as the property value, the length of the renewal term, and any negotiations between the leaseholder and the freeholder. Unlike extending a lease, which typically involves paying a premium to the freeholder, renewing a lease generally involves paying a nominal fee known as a “peppercorn rent” or a small percentage of the property value.The exact cost of renewing a leasehold will depend on the specific terms agreed upon between the parties involved. It is advisable to consult with a solicitor or a licenced conveyancer who specialises in leasehold matters to get an accurate estimate of the costs involved based on your particular situation.

Q. How much does it cost to extend a leasehold in uk ?

The cost of extending a leasehold in the UK can range from a few thousand pounds to tens of thousands of pounds, depending on factors such as the remaining lease length, property value, and negotiated terms with the freeholder. Additional costs include legal fees, valuation fees, and disbursements such as Land Registry fees. It’s recommended to seek professional advice for an accurate estimate based on your specific situation.

Illustration showing the differences between freehold and leasehold land ownership in the UK

Understanding the Difference Between Freehold Land and Leasehold Land

December 5, 2024

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In the UK, property ownership falls under two main categories: freehold and leasehold. The distinctions between these types of ownership are significant, especially when considering the long-term implications on property rights, responsibilities, and financial commitments. This blog will explore the key differences between freehold land and leasehold land to help you better understand which option suits your needs.

1. What Is Freehold Land?

Freehold ownership means that you own the property and the land it stands on outright. This ownership is not limited to a specific period, providing complete control over the property without requiring consent from any landlord. Freehold is often preferred for houses, as it allows homeowners to make alterations or improvements without seeking permission.

For a more in-depth understanding of freehold tenure, refer to our guide: What is Freehold Tenure? Know Everything About Freehold Tenure.

2. What Is Leasehold Land?

With leasehold ownership, you own the property but not the land it’s built on. The land remains under the ownership of a freeholder, who grants a lease for a specific period (typically 99, 125, or 999 years). Upon expiration, ownership of the property reverts to the freeholder, unless the lease is extended or the freehold is purchased. This arrangement is more common for flats and apartments, where multiple units share the same building structure.

Many leaseholders are required to pay ground rent to the freeholder. Understanding why leaseholders pay ground rent can be challenging, so here’s an article explaining Why Do I Pay Ground Rent on a Freehold Property?.

3. Responsibilities and Restrictions of Leasehold Ownership

Leaseholders have specific obligations, including service charges for maintenance and repair of communal areas. Additionally, leasehold properties can include restrictive clauses preventing certain modifications without the freeholder’s consent. This could affect property alterations, subletting, or even keeping pets.

For advice on handling leasehold property alterations, see our guide: Making Alterations to a Leasehold Property.

4. Lease Extensions and Valuations

Leasehold ownership comes with the added consideration of extending the lease. A shorter lease may devalue the property and can impact mortgage eligibility. Extending a lease typically requires payment to the freeholder, known as the “premium,” which can be calculated based on the remaining lease term.

For more on this, check out our resource on How to Calculate a Lease Extension Valuation and learn how lease extensions affect property value: How Much Does a Short Lease Devalue a Property?

5. Can You Buy the Freehold of a Leasehold Property?

Many leaseholders opt to purchase the freehold to gain full ownership. Collective enfranchisement allows a group of leaseholders in the same building to collectively buy the freehold, providing them with more control over property management.

If you’re considering this, here’s what you need to know: How Many Leaseholders Are Required to Buy the Freehold?

6. Financing and Mortgaging Freehold vs. Leasehold

When it comes to financing, freehold properties often have more straightforward mortgage terms than leaseholds, as lenders may have restrictions or impose higher interest rates on short leases. Some banks are hesitant to approve mortgages on properties with leases under 70 years.

Learn more about mortgage concerns with leasehold properties in our guide: The Mortgage Implications of Short Lease Properties.

7. Choosing Between Freehold and Leasehold

Choosing between freehold and leasehold depends on your long-term plans and budget. Freehold offers greater control, while leasehold may be more affordable but comes with limitations and additional costs. If you are interested in exploring the financial implications further, read our blog on Is It Worth Buying the Freehold?

Conclusion

Understanding the difference between freehold and leasehold land is essential for anyone looking to buy property in the UK. Both types have unique benefits and challenges that can impact your ownership experience. To make an informed decision, ensure you consult professionals and fully understand all related obligations and costs.

For expert guidance on leasehold and freehold matters, including lease extensions and valuations, reach out to our team.