Owning a leasehold property means that you don’t own the land outright, but instead, hold rights to use it for a specific period. But what happens when that time runs out? In this guide, we'll cover what happens when a leasehold expires and how to manage your lease length. Let's get started.
What is a leasehold?
Simply put, a leasehold is a type of property ownership where you own the property but not the land it sits on. Instead, you lease the property from the freeholder (or landlord) for a set number of years, typically ranging from 99 to 999 years. Leaseholds are most common with flats, but houses can also be sold as leasehold properties in some parts of the UK.
đź’ˇEditor's insight
"I know some first-time buyers haven't heard the term leasehold before. The best example is a block of flats. Each flat is owned by a different person, known as the leaseholder. But the building itself is owned by someone else, the freeholder. With a leasehold property, it's like being a long-term tenant but with additional ownership rights."
If you're still not sure or want more advice, check out our guide to leasehold vs freehold properties.
What happens when a leasehold expires in the UK?
When a leasehold expires, ownership of the property returns to the freeholder. This is known as reversion and applies even if you've lived at the property for a long time. In practical terms, this means:
The leaseholder loses their legal ownership rights to the property
The freeholder gains full control of the property, including the ability to sell or rent it out
It sounds scary, but for residential properties, it’s uncommon for leases to reach expiry. This is because most leaseholders extend their lease long before it runs out. However, if a lease does expire, the leaseholder has a few options. They can:
Negotiate a new lease agreement with the freeholder
Continue living in the property under statutory rights, paying a market rent
đź’ˇEditor's insight
"Some people assume a leasehold can't expire if you've finished repaying your mortgage. This isn't accurate. Your mortgage pays for the cost of the lease, but not the cost of the freehold property."
How to find out how long is left on a lease
Knowing how long is left on your lease is crucial for maintaining your property’s value and avoiding complications. There are a few ways you can check your lease length:
Review your lease agreement: If you're the leaseholder, the original lease document will state the length and start date.
Contact the freeholder: The freeholder will have records of your lease. And as a last resort, you can try contacting the solicitor who handled the property transaction.
Check Land Registry records: For a small fee, you can obtain details about your lease from the Land Registry.
What is a good lease length?
There are no set rules on what is a good or bad lease. However, it's generally considered that a lease above 80 years is a 'good' lease. This is because the cost of extending a lease below 80 years can be higher, which makes the property more difficult to sell. However, the decision comes down to your goals and what you want from the property. You can learn more in our expert guide to is a 100-year lease long enough.
In general, these are benchmarks that most would use:
80+ years | Considered a good lease length. It avoids costly marriage value fees when extending. |
50-79 years | Lenders may hesitate to approve mortgages, and extending the lease can be expensive. |
Below 50 years | The property becomes harder to sell and significantly drops in value. |
How to extend your lease
There are two main options when extending a lease: formal lease extension and informal lease extension. The formal route follows a more established procedure - you'll need to serve a Section 42 notice with the help of solicitors. Whereas the informal route is a private agreement between the leaseholder and the freeholder. Our network of experienced lease extension solicitors can guide you through either option. Here’s how to do it:
The formal lease extension process
1. Check you're eligible
Before proceeding, ensure you meet the eligibility criteria. Typically, you must have owned the property for at least two years to qualify for a formal lease extension under the Leasehold Reform Act.
2. Find a valuation surveyor
Engage a qualified valuation surveyor to determine the premium (cost) for extending your lease. Their expertise ensures an accurate valuation, which is essential for negotiations with the freeholder.
3. Make a formal offer
Serve a Section 42 notice (formal offer) to the freeholder, initiating the lease extension process. This notice outlines your proposed premium and key terms.
4. Negotiate the terms
Work with the freeholder to agree on the premium and any additional legal costs. This stage may involve some back-and-forth, so consider professional legal advice.
Informal lease extensions explained
Some leaseholders prefer an informal lease extension as it can be cheaper and quicker. However, there are certain drawbacks too. There are fewer legal protections. Plus, your freeholder might only extend your lease to 99 or so years - meaning you could be in the same position again in a few years. The choice of an informal or a formal extension will come down to your relationship with the freeholder and your personal preferences.
đź’ˇEditor's insight
"If you are pursuing an informal extension, it's good to read up on the Leasehold Reform (Ground Rent) Act 2022. For example, this outlines that for any informal extensions happening after June 2022, the freeholder can't add any new ground rent clauses to your lease."
What happens if I don’t renew my lease?
Failing to renew your lease before it expires can have serious consequences:
Loss of property ownership: The freeholder regains full control of the property.
Market rent charges: You may be allowed to remain in the property but must pay a market-based rent to the freeholder.
Difficulty selling: A short lease significantly reduces property value, making it challenging to sell.
What happens if a freeholder refuses a lease extension?
Freeholders are legally obligated to grant a lease extension if you follow the statutory process. However, disputes can arise over things like :
Premiums and the amount charged for the lease extension
Terms and changes to the lease clauses
What you can do
Apply to a tribunal: If the freeholder refuses, you can take your case to the First-tier Tribunal (Property Chamber) for resolution.
Seek legal advice: A property solicitor specialising in leasehold law can help navigate disputes.
What is the 20-year lease rule?
The 20-year lease rule applies to properties with long leases. The rule means that if a lease has less than 80 years remaining and the term of the lease is for more than 21 years, the leaseholder has the right to extend the lease for another 90 years. The rule is based on the Leasehold Reform, Housing and Urban Development Act 1993.
Leases below 20 years
In this sense, the 20-year lease rule is a term often used to describe the difficulties properties face when their lease drops below 20 years. These difficulties include:
Lenders’ concerns: Mortgage providers typically refuse to finance properties with less than 20 years remaining on the lease.
Rapid depreciation: The property’s value declines steeply as the lease approaches expiry.
Lease extension urgency: Extending becomes costlier and more challenging as the lease length diminishes.
Leasehold Reform explained
Leasehold property ownership has been a highly discussed topic in government for the past few years. The Leasehold Reform aims to address the imbalance of power between freeholders and leaseholders. In fact, recent government proposals focus on making the process fairer and more transparent.
For lease extensions, there are a number of benefits. These include:
The standard extension term could increase from 90 years for flats to up to 990 years
Ground rent could be reduced
Easier criteria for leaseholder who want to extend their lease
No minimum ownership period
Marriage rent could be abolished
Learn more about the details and timeline for the Leasehold Reform in our full guide.
FAQs
What happens when a leasehold ends?
When a leasehold ends, the property ownership reverts to the freeholder. Leaseholders lose their rights unless they negotiate a new agreement or rely on statutory protections.
What happens when a leasehold expires in the UK?
In the UK, leasehold expiration typically results in the freeholder reclaiming the property. Leaseholders may remain in the property by paying market rent under statutory rules.
What happens after a lease expires?
After a lease expires, the leaseholder’s legal ownership ends. Negotiating a new lease or extending the existing one is essential to maintain property rights.
What happens when a 99-year lease runs out?
When a 99-year lease expires, the property reverts to the freeholder unless the lease is renewed. Acting before the lease length drops significantly is crucial.
Final thoughts
Understanding what happens when a leasehold expires is vital for leaseholders to protect their property rights and value. By staying proactive, you can avoid the pitfalls of expiring leases. If you’re uncertain about your lease or next steps, professional advice can provide clarity and peace of mind. Get a free quote today and see how our team of legal professionals can help.
References
Leasehold property from Gov.UK