LEASE EXTENSION
(Commonly asked questions)
Almost all leaseholders have the right to extend their lease under the 1993 Leasehold Reform Act but extending your lease can be a long and complicated process.
Here are a few FAQ’s to help you get started:
1. I need to extend the length of my Lease. How can I do this?
There are two routes the Leaseholder of a flat can use to extend their Lease. One is the informal (uncontested) route, the other a more formal (contested) route.
2. Can you tell me a bit about the informal (uncontested) route?
Some Landlords are willing to grant an extended Lease voluntarily. An approach to your Landlord or your Landlord’s Agents will establish this. You can either do this yourself or your legal advisor or Surveyor can do this on your behalf. You might save on costs and pay less to the Landlord to extend your Lease this way than in going down the formal route. However be aware that you will have no legal protection and an informal Lease Extension doesn’t mean you will necessarily achieve a further 90 years nor that the ground rent will go down to a peppercorn. What you gain in one hand you may actually lose by an increase in the ground rent.
Many Landlords use the informal route as a way of hiking up ground rent to such a level as the re-sale value of the flat can be affected. Our advice is to use the formal route wherever possible.
3. Can you tell me about the formal (contested) route?
Certain tenants are known as Qualified Tenants and have the right to require the Landlord to grant them an extension of their Leasehold term under the Leasehold Reform Housing & Urban Development Act 1993 (the Act). To be a Qualifying Tenant:
Your Lease must have been granted for a term of 21 years or more (a long Lease) and your property must be a flat
You must have held (owned) the Lease for a continuous period of 2 years or more
Your legal advisor will tell you if you qualify.
4. What if I haven’t held the Lease for a continuous period of 2 years or more?
If you already own the property but have owned it for less than 2 years you will have to wait until you have owned it for 2 years to proceed under the formal route. An alternative would be to approach your Landlord or your Landlord’s Agents to proceed under the informal route. However please note our ground rent warning above.
If you don’t already own a flat but are thinking of buying one with a short Lease, the seller can initiate the process before you buy and as a buyer the right to extend the Lease can be assigned to you on exchange of Contracts. This means you takeover the Lease Extension when you buy the property. We will discuss what this involves in 9 and 10 below. If you would rather not do this but want a longer Lease the seller can actually complete the Lease Extension before you buy the property but this might delay the purchase of the flat. You will then buy a flat with a longer Lease. Which route you decide to follow is something you will need to discuss with the Estate Agent when you make the offer to buy the Lease. The length of the Lease affects its valuation. A Surveyor will be able to advise you on how much this will affect the value of the property. In either scenario the seller may expect you to be responsible for the costs of the Lease Extension.
5. I think I am a Qualifying Tenant, what do I do next?
Your legal advisor will double check you are in fact a Qualifying Tenant. If so your legal advisor will serve a Section 42 Notice on the Landlord under the Act containing various key points including how much you are prepared to pay to extend the Lease. We would advise you use a Solicitor to draft and serve the Notice as it is a technical document.
6. How much will I have to pay to extend my Lease?
You will have to pay the Landlord a premium representing the cost to the Landlord for extending the Lease and reducing the ground rent to a peppercorn. If the Lease is extended under the formal route the premium is calculated according to a statutory formula. A Surveyor can advise you how much you should initially offer in the Section 42 Notice. This sum is usually less than you will actually end up paying. It is a bit like making an offer to buy a house. In addition to the premium there will be your professional costs, the administrative cost of any Mortgagee whose consent will be required, the Landlord’s costs and the Land Registry fees. There may also be Stamp Duty where appropriate. Please note that if the Lease has less than 80 years to run this will increase the cost of extending the Lease.
7. You mentioned Surveyor’s fees. Is this really necessary?
There is no legal requirement to have a formal valuation but this is recommended and a Specialist Valuer should be used. This is not something that Lawyers can advise on but Spire Solicitors work with a number of Specialist Surveyors.
8. We have served our Section 42 Notice, what happens next?
What will happen next is that the Landlord will serve a Counternotice stating the sum the Landlord is prepared to accept to extend the Lease. Again the figure on the Counternotice is likely to be higher than you will ultimately end up paying the Landlord to extend the Lease. The Landlord has the right to insist on a Surveyor carrying out a survey of the property before serving the Counternotice. The Landlord is also entitled to demand a preliminary deposit of 10% of the premium stated on the Tenant’s Section 42 Notice. This is set-off against the final figure payable.
9. I don’t want to pay the premium the Landlord wants to extend the Lease as it seems too much. What can I do?
After the service of the Landlord’s Counternotice the Landlord and Tenant have a period of up to six months to agree the final premium. This negotiation can be between the Tenant and the Landlord (or the Landlord’s Agent) directly but normally it is carried out by Surveyors.
10. What if we can’t agree?
If you are unable to agree a premium you will have the right to apply to the Tribunal to determine the premium to be paid. It is important to make an application to the Tribunal within the time limit. Failure to do so will result in you losing the right to extend the Lease and having to start again. You may have to wait for a period of a year before being able to do so and will be liable for costs.
11. We have agreed a premium, what happens next?
Your legal advisor and your Landlord’s legal advisor will prepare a new Lease. Once agreed and signed by both parties and a completion date agreed. This is the date the premium and all fees will be payable along with any ground rent due up to the completion date (after that no ground rent will be payable).
Your Legal Advisor will then be able to deal with the post completion steps on your behalf which will include registering the new Lease at the Land Registry.
PURCHASE OF FREEHOLD
1. I have received a Notice telling me the building where my flat is is being sold and do I want to buy it? What shall I do next?
The building which contains your flat is known as the freehold. The most important thing is to take legal advice as soon as possible to ensure you have the right to buy the freehold and also to discuss your next move to ensure you don’t miss the deadline in the Notice. You might also want to talk with your neighbours as they will have received the same Notice and might be interested in buying the building with you. In which case all those interested could take legal advice as a group.
2. I want to buy the building where my flat is but my Landlord doesn’t want to sell it.
Some tenants have the right to force their Landlords to sell them the freehold. Your first step should be to take legal advice to ensure you and at least half the other Leaseholders qualify and want to buy the freehold with you. Your legal advisor will then be able to tell you your next steps.
3. How much of this type of work does your firm carry out?
Some Solicitors firms carry out very little work of this nature but at Spire we have Solicitors who are specialists in Lease Extensions and Freehold Enfranchisement.
Joanna Nixon is a Solicitor with Spire Solicitors LLP of Holland Court, The Close, Norwich, NR1 4DY. Joanna specialises in lease extensions and other leasehold enfranchisement.
