This is a difficult question to answer and depends on your personal circumstances.
The Act is not in effect and the new Government has indicated that it wants to implement the Act quickly. But the reforms will be implemented in stages and will require further consultation and secondary legislation. So it’s worth noting that reform is still some time off. Changes to the lease extension process may not be realised until 2025/26.
If you are a leaseholder considering whether to extend your lease or purchase your freehold now or to wait, you need to consider:
Will the reform make a lease extension cheaper for me?
If your lease is below 80 years, or if you have a ground rent above 0.1% of the value of your property, it will likely be cheaper. That’s because the reforms were designed to help people who have short leases below 80 years, by abolishing marriage value. It also helps people with high ground rents, by capping ground rents in the lease extension calculation – although the cap doesn’t apply in all cases.
Could the reform make a lease extension more expensive?
The aim of the legislation is to make it easier and cheaper for leaseholders to extend their lease or collectively buy out the freehold of their building. The abolition of marriage value and the removal of the requirement to pay the freeholders’ costs will make the process cheaper for many. However we cannot say for certain that all leaseholders will be better off at this stage.
This is because the Act doesn’t specify the rates that will be used to determine lease extension and freehold purchase prices. These “deferment and capitalisation rates” will be set at a later date and if they’re set at a lower rate than what is currently agreed between valuers, the cost of lease extensions could go up.
Until those rates are set, we won’t know whether the cost of lease extensions will come down for all leaseholders. If your lease is above 80 years or you have a low ground rent, the reforms could end up making a lease extension more expensive – though that is not the intention.
Can I wait for the reforms to be implemented?
Given the above, it is hard to give a definitive answer on whether you should extend your lease now. You should seek advice from a leasehold practitioner via the Law Society or ALEP.
If your lease is already below 80 years or you have a high ground rent, you will most likely be better off waiting for the law to change before extending. The removal of marriage value and the cap on ground rent used to calculate a lease premium will be of benefit.
Practitioners believe that for some leaseholders it is prudent to consider extending a lease now and not waiting for the reforms. This is especially if you need to sell in the next year or so or if you have 80 to 82 years left on the lease.
Does the length of my lease make a difference?
What you might choose to do will depend on factors like your lease length and your circumstances. For example:
- Lease length: 80 to 82 years – It’s almost certainly advisable to extend. It’s unlikely that the reforms will be through before your lease drops below the “80-year mark” at which marriage value currently kicks in. There is no guarantee that it will be cheaper in the future than it is for you now.
- Want to move or re-mortgage and the current lease is an issue: Probably best to extend.
- Lease is above 82 years – It’s up to you: it is likely be made cheaper by the reforms, but it might also be made more expensive. If you’re comfortably over the threshold, say 100 years, you could wait to see what reforms come.
- Ground rent is above 0.1% of your property value (or rises to that level in the future): Consider waiting because it may be made cheaper for you in the future if the 0.1% cap applies to your lease.
- Lease below 80 years: Again, you should consider waiting as it might be made cheaper for you in the future given abolition of marriage value.
More information you might find useful:
- Government reforms to make it easier and cheaper for leaseholders to buy their homes
- How can I extend my lease?
- Lease Extension – Getting Started
- Lease Extension Calculator
- More Frequently Asked Questions on Lease Extension
Still not found the answer?
Contact LEASE to have your enquiry dealt with by one of our experienced advisers