What is a Lease extension?

08:57 01 May in News & Case Studies
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The Leasehold Reform, Housing and Urban Development Act 1993 (“the Act”) provides leaseholders with the right to extend their lease; subject to certain qualifying criteria being met.

The Act provides the leaseholder with a right to extend the lease term by a further 90 years and extinguishes the ground rent. This is known as a statutory lease extension. The right is one of compulsion, as historically a Freeholder could demand a premium at its discretion or refuse a lease extension.

Unlike a Freehold asset which grants ownership for an infinite period, a leasehold asset is an ownership for a defined number of years. Over the course of time as those years reduce, so does the value of the Leasehold property. As the term of the lease gets shorter, the premium payable for the extension increases. Therefore a lease is often described as a depreciating asset.

 

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