Lease Extensions by Kerry Hicks
Nb. The following is for guidance only and is in general terms in preparation for the seminar. Any Leaseholder intending to proceed with a potential lease extension should take independent legal advice
BENEFITS TO LEASEHOLDER OF A LEASE EXTENSION?
1. Enhanced terms
No ground rent and extension of additional 90 years term in addition to the current unexpired term
2. Lender Requirements
To ensure the property is marketable and satisfactory security. Requirements vary from lender to lender and from time to time but example of current requirements below for sample lenders:-
70 years unexpired from the date of the mortgage
75 years un-expired subject to at least 50 years at the end of the mortgage term
Mortgage term plus 30 years
55 years un-expired subject to at least 30 years at the end of the mortgage term
The longer the lease term, the higher the value is likely to be and more appealing to potential buyers.
The shorter the unexpired term, the more expensive the premium is likely to be as more beneficial to the leaseholder to extend and potentially greater loss to landlord.
5. Other Matters
May be able to agree to remedy potential defects in the Lease at the same time
Your legal advisor will guide you on this in detail but requirements include
Ownership for 2 years (exceptions eg on assignment of the right or if informal extension)
Long lease (term exceeding 21 years when granted)
Self contained unit
Preparation and service of notices
Preparation or approval and conclusion of deed
Indicate sensible premium (and advise as to the best and worst case scenarios)
Negotiations with Landlord’s surveyor after service of S42 Notice if formal procedure
May be required to attend tribunal if terms in dispute
Leasehold Advisory Service
Good source of general information
TYPES OF LEASE EXTENSION
Two types of lease extension (Formal and Informal)
Which do you chose?
If the Leaseholder does not qualify under the formal procedure, the only option is to proceed informally
Nb: formal procedure is not available to shared ownership leaseholders unless they have staircased to 100% ownership
Only redress if terms cannot be agreed informally is to then commence formal procedure and seek determination by a tribunal
Fixed time periods within the formal procedure
Flexibility (terms and timescales)
Ability to assign the benefit of the right (formal procedure). Ideal if the lease needs to be extended to satisfy an incoming buyer’s lender.
Leasehold Reform Housing and Urban Development Act 1993
Relevant parties to be involved
S42 initial notice by Leaseholder
Setting out proposals
Gives Landlord at least 2 months to respond
S45 counter-notice by Landlord
admit or not admit claim.
If admit claim and all terms accepted by the Landlord, the draft papers are drawn up and agreed and the deed concluded.
If admit claim but some terms not agreed, counter-proposals and set out and parties negotiate
If claim not admitted, counter-notice must set out reasons (eg redevelopment intended)
Negotiation if required
period of between 2 and 6 months and after initial 2 months either party can apply to tribunal to determine an issue
If Landlord does not serve a counter-notice by the date specified, the Leaseholder can apply to tribunal for vesting order on the terms set out in S42 notice
Not restricted to criteria above
Only option available to shared owners who have yet to staircase to 100% ownership
More flexible timescales
May agree additional terms
Usually still end up with 90 years additional term and a peppercorn rent
Try to agree fee at outset but this will increase if negotiation is required or attendance at tribunal etc.
Again try to agree at the outset (usually expected to meet Landlord’s legal fees as well as own)
Generally assessed by professional valuer in accordance with the legislation relating to lease extensions.
Loss to Landlord re reversion (difference between the two)
Loss of ground rent for remainder of term and new term
Delay before reversion
Increase in value from grant of extended lease (shared between parties)
To Landlord for any other loss/diminution of value
If you’d like further assistance in this matter please contact Kerry Hicks Associate by emailing her at email@example.com or call on 020 8799 1860