Leasehold properties are described as depreciating assets because the value of a leasehold property reduces every year. If you own a leasehold property however, you may be entitled to a lease extension which would extend the term (number of years) of your lease and so increase the underlying asset value.
There are two ways that this can be achieved; statutory lease extension or voluntarily lease extension. I will deal with a voluntary lease extension below but if you would like to know more about a statutory lease extension, please read our recently published article.
If you wish to extend your lease voluntarily, you may approach your landlord and ask if they are willing to grant you a lease extension outside of the strict statutory procedure governed by the Leasehold Reform, Housing and Urban Development Act 1993 (the Act). This means that the terms of the lease and the premium of the lease extension, will not need to fall within the strict procedure/deadlines of the Act and you and your landlord can essentially discuss and agree to any terms that you wish and complete the lease at your own pace.
Extending your lease voluntarily may appear more attractive than a statutory lease extension but it is worth noting that the terms and the premium agreed may not be as beneficial as they would be with a statutory lease extension. This is because, as mentioned above, either party can request whatever terms they like and the terms suggested are going to be more favourable to the party who has suggested the specific term. It is therefore important to discuss any proposed provisions with your solicitor before agreeing to them formally as landlords and tenants will often see this as an opportunity to obtain a more favourable lease from their perspective, possibly to the detriment of the other party.
This is particularly true of ground rents. If you pursue a voluntary lease extension, be aware that your landlord may require an escalating ground rent as part of the deal and your landlord is likely to offer a lower premium for your lease extension to make the higher ground rent seem more attractive. This is likely to cause problems with your lease in the future and should be avoided where at all possible.
If you would like to approach your landlord in regards to a voluntary lease extension, you may instruct us to send an initial letter to your landlord or you could contact your landlord directly with or without our assistance.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at February 2020.