LEASE EXTENSIONS: “I have 81 years left on the term of my lease. Why do I need to extend it and what is the procedure?”
1. Why should I extend my lease?
A residential lease allows a leaseholder to occupy a property for a fixed period of time, often initially for 99 or 120 years. Every day that time gets shorter and could ultimately require the leaseholder to hand back the property to the freeholder.
A problem more regularly encountered is that a property with a lease of less than 80 years is likely to achieve a lower sale price as potential purchasers may be reluctant to take on a short lease and may not be able to raise a mortgage against it, limiting the number of potential buyers substantially.
2. How do I extend my lease?
An individual leaseholder can seek to extend their lease in one of two ways, that is either:
(a) entering into negotiations with the landlord to try and mutually agree the terms of a lease extension which could be for any number of years at any price depending on what is agreed, or
(b) take a formal route to get a lease extension under the Leasehold Reform, Housing and Urban Development Act 1993 as leaseholders of flats with long leases have a statutory right to a new lease in substitution for their existing lease extended by 90 years i.e. added to the balance of the term of the original lease with the ground rent reduced to a peppercorn.
3. Who decides the premium to be paid?
The good news for leaseholders is that a landlord cannot demand any sum for the lease extension. If necessary a Tribunal can determine the terms including the price to be paid known as the ‘premium’. The only qualifying condition is that the leaseholder must have held the lease for 2 years or more. However the benefit of the leaseholder’s claim under the statutory procedure can be assigned to a new owner of the flat. There is no residential requirement nor does it matter how many flats the leaseholder owns in the building.
The good news for landlords and residential freehold companies is that such extended leases are subject to the payment of a premium or purchase price (partly in compensation for the loss of ground rent). Many landlords with properties subject to long leases completed in the 1960s, 1970s and 1980s are now seeking to approach leaseholders with the incentive of a lower premium to agree an extended lease in order to raise additional revenue. This includes Housing Associations.
It is possible to agree the terms of a new lease outside of the statutory procedure. Such an agreement does not act as a bar to any future claims for a new extended lease.
4. How is the premium calculated?
The premium payable is calculated by a statutory formula. We strongly recommend the involvement of a specialist surveyor unless the parties have been able to reach an agreement. Websites quoting “estimates” are not an accurate guide to the value of a particular property and cannot be relied on in Court or at Tribunals. We can recommend a choice of specialist surveyors. It is important to note that a “marriage value” is payable where the lease has 80 years or less to run. This is significant, particularly for high value flats. It is also possible to agree the revision of other leasehold terms if there is a need to modernise the wording or remove a defect but the statutory procedure only allows for minor and particular changes and not a re-negotiation of the terms of the lease.
5. Should I involve other leaseholders?
If a group of leaseholders in a block or building act together in extending their leases there may be significant savings in costs. If a group of leaseholders are to or have commenced collective enfranchisement to purchase the freehold title from the landlord then any application for a lease extension will be suspended pending the outcome of the collective enfranchisement.
6. What if the landlord does not recognise a leaseholder’s right or agreement cannot be reached?
If a landlord does not admit the claim, or opposes it on redevelopment grounds (under the statutory procedure) the onus is on him to apply to the Court for a supported declaration. The landlord must apply within 2 months of service of his Counter Notice. If the Court rejects the landlord’s claim or he fails to make such a claim then the leaseholder’s claim will proceed.
7. What is the statutory procedure?
If agreement cannot be reached between the parties it will be necessary to follow the statutory procedure as follows:
(a) Service of the leaseholder’s Notice of Claim to include the suggested premium payable, any other suggested amendments or addition to the lease and the date by which the landlord must serve his or her Counter Notice, being at least 2 months after the date of service of the leaseholder’s Notice of Claim. The valuation date is the date of the service of the leaseholder’s Notice of Claim.
(b) The landlord’s Counter Notice must include confirmation as to whether the landlord admits or does not admit the leaseholder’s claim, if admitted states what proposals are accepted or not and as appropriate state any counter proposals.
These Notices are technical documents and particular steps have to be taken to ensure that they are effectively served. Therefore we strongly advise that specialist solicitors, such as ourselves, should be instructed to act on behalf of either the leaseholder’s or the landlord’s behalf.
(c) If the landlord fails to serve a Counter Notice or is out of time in attempting to do so then he loses the right to dispute the leaseholder’s proposed terms of the extended new lease. In such circumstances the leaseholder has 6 months from the date when the Counter Notice should have been served to apply to the Court for an Order giving effect to the leaseholder’s proposed terms. If the landlord disputes the validity of the leaseholder’s Notice then either the landlord or the leaseholder should apply to the Court for a determination of this issue.
(d) If the leaseholder’s right is admitted in the landlord’s Counter Notice then the parties have 2 months to reach agreement as to the terms of the new extended lease after which either party may refer the dispute to the First-Tier Property Tribunal but this must be made before the expiry of 6 months after the service of the landlord’s Counter Notice.
(e) Once the new extended lease has been agreed or determined by a Tribunal it is necessary to follow a conveyancing process for the parties to enter into and complete the new lease and for it to be registered at HM Land Registry. The premium is payable to the landlord on completion together with the landlord’s costs. The leaseholder is required to pay the landlord’s costs limited to the cost of investigating the leaseholder’s claim, the valuation i.e. the premium payable and the conveyancing costs, in other words the landlord’s legal and surveyor’s costs. The landlord may also ask for a deposit of 10% of the premium being offered by the leaseholder.
If the leaseholder is the joint owner of the freehold or owns a share in a company which owns the freehold this does not affect his or her need to a new extended lease. If the leaseholder is selling his or her flat and there is a right to extend their lease then the leaseholder can serve a Notice of Claim and then assign the benefit to their purchaser who will then not have to wait 2 years before serving a Notice in their own right to extend. This is particularly useful where there is a lease of less than 80 years having to be sold.
If you wish to arrange an appointment to discuss matters
pertaining to lease extensions please contact
Jeremy Teall, Partner (e-mail firstname.lastname@example.org)
or Ram Ganeson, Solicitor (e-mail email@example.com)
or on 020 8567 3477