Lease extensions

With the property market in London and other major cities, such as Manchester, continuing to grow, it is important to ensure that if you own leasehold property you are fully aware of your rights to protect your investment. Ownership of a long residential lease can be a valuable asset, however as the lease term decreases over time so, unfortunately, can the value of that asset. The Leasehold Reform and Urban Development Act 1993 (as amended) gives ‘qualifying leaseholders’ the right to a lease extension in certain circumstances.

We understand the importance for landlords of having a strategy which works across an entire property portfolio to obtain the best possible new lease terms as well as the best premium.

The right is to extend the existing lease by 90 years at a "peppercorn rent" (this means effectively no ground rent is payable). For example, if the present lease had 80 years left to run the new, extended lease would be for 170 years. The landlord is entitled to a premium for the lease extension and this is based on a formula set out in the relevant Act.

You can use our online lease extension calculator to estimate the premium for a statutory lease extension. This calculation should not remove the need to instruct an experienced surveyor for an accurate valuation.

If a lease has less than 80 years to run at the time when a lease extension is claimed, the price is increased by an additional valuation element called the “marriage value”. If a lease has approximately 80 years remaining, it is important to act quickly so as not to pay a higher premium for the extension.

Below we outline the procedure for lease extensions.

Early investigations

Qualification for a lease extension

Before starting the formal lease extension procedure it is important to first check that you meet the qualification requirements: Your lease must have been granted for a term of 21 years or more initially.

You must be registered as the owner of the lease for at least 2 years.

If your landlord is a charitable housing trust and the flat is provided as part of the charity's functions or if it is a business or commercial lease then you will not qualify for a lease extension.

Identifying the ‘competent landlord’

You will need to identify the competent landlord. The competent landlord is the landlord with a sufficiently superior interest in the property as to be able to grant the 90 year lease extension - that is, an interest over 90 years longer than your present lease.

Often the immediate landlord will be the freeholder and therefore the competent landlord. However, there are cases where the immediate landlord possesses an intermediate lease which is too short to give the flat owner a ninety year extension. This is not an obstacle to obtaining a lease extension but before you start the formal lease extension procedure you must be careful to ensure that you have identified the correct ‘competent landlord’.

The formal procedure

The leaseholder’s initial notice of claim (section 42 notice) triggers the statutory procedures for acquiring the new lease and the leaseholder is liable for the landlord's reasonable costs as from the date he received the Notice. The initial notice will set out certain essential information about the Flat and the Leaseholder, and also the premium that the Leaseholder wishes to pay for the Lease Extension. The Claim Notice is served on the competent landlord with copies provided to any other intermediate landlord.

  • It is important that the Notice is complete and contains no inaccuracies or misdescriptions because an incomplete notice can be rejected as invalid. It may be possible to correct misdescriptions or inaccuracies by application to the County Court but this is an expense that should be avoided.
  • The Notice contains a date by which the competent landlord must respond. That date must be at least 2 months after the date of service of the Claim Notice.
  • Once the Initial Notice is served, the leaseholder will be responsible for the landlord’s reasonable valuation and legal costs, as well as his own. The Notice is also important in setting the valuation date for assessing the premium payable to the landlord.
  • Ronald Fletcher Baker LLP is experienced in dealing with the relevant legislative practices and procedures and will work with you to ensure that we gather all the necessary information required to complete the initial notice.
  • Leaseholders can register the Initial Notice with the Land Registry. This provides protection for the leaseholder against the landlord's sale of the freehold. Any purchaser of the freehold, subsequent to the registration of the Tenant's Notice will take the freehold subject to the application for the new lease. 
  • The landlord is entitled at any time after receipt of the Tenant's Notice to require the payment of a deposit. This may be 10% of the premium proposed in the Tenant's Notice or £250, whichever is the greater.
  • The Landlord will then serve a Counter Notice stating if he accepts that the individual Leaseholder has the right to extend his or her Lease and, if so, what terms he agrees and what he does not.
  • There is a period of 2 months following the service of the landlord’s counter notice when the parties can enter into negotiation with a view to agreeing the premium and the terms of the lease.
  • If the Landlord does not respond to the Notice of Claim, or responds late then the Leaseholder is entitled to a Lease Extension on the terms set out in the Claim Notice. There is a procedure that can be followed to enforce this.
  • If there are outstanding issues, the Leaseholder must, within six months of the date of the Landlord’s Counter-Notice, apply to the Property Chamber First Tier Tribunal (“the Tribunal”) for a decision on the terms which have not been agreed.
  • The Tribunal will provide various directions which both parties must comply with and it will set a final hearing date. The parties can continue to negotiate whilst this is going on.

Lease extension outside the Act

It is possible for the leaseholder to try to negotiate an extension outside the statutory procedures laid down by the Leasehold Reform Act, however, there are risks in taking this route. There is no obligation on the landlord to offer you what you are entitled to under statute. You might not achieve a 90 year extension, you may not get a peppercorn ground rent and you may well have to pay a higher premium. There is also a risk that you could incur legal fees in corresponding with the landlord only for the landlord to refuse to grant the lease extension.

What premium is payable for a lease extension?

The premium to be paid for the new lease, according to Schedule 13, Part II of the Leasehold Reform, Housing and Urban Development Act 1993 (as amended), shall be the total of:

  • The diminution in the value of the landlord's interest in the flat; i.e. the difference between the value of his interest now with the present lease and the value of his interest after the grant of the new lease with the extra 90 years – this is calculated by reference to the loss of the income from the ground rent for the remainder of the original term (as the whole term of the new lease will be at peppercorn rent) and the loss due to the additional 90 years wait for the reversion.
  • The landlord's share of the marriage value; this will only be added where the unexpired term of the lease is less than 80 years. Marriage value is taken as the potential for the increase in the value of the flat arising from the grant of the new lease; the Act requires that this 'profit' shall be shared between the parties. A leaseholder with a lease approaching 81 years unexpired should therefore seriously consider extending it as soon as possible
  • Compensation for loss arising from the grant of the new lease; this provides a remedy to the landlord for any other diminution in the value of his interest in other property (other flats in the building or the building itself) and any loss or damage arising from the grant of the new lease.

There is no requirement to have a formal valuation but this is usually advisable as having a detailed valuation carried out by an expert surveyor at an early stage will help determine whether the lease extension is financially viable and allow you to negotiate the premium with more certainty.

You can use our online lease extension calculator to estimate the premium for a statutory lease extension. This calculation should not remove the need to instruct an experienced surveyor for an accurate valuation.

A surveyor may also be required for negotiations regarding the premium after the service of the initial notice and the counter notice, and to give expert evidence to the Tribunal if agreement cannot be reached. Ronald Fletcher Baker LLP has a selection of expert surveyors who we can put you in touch with if necessary.

Absent Landlords

If the landlord cannot be found then the leaseholders' Notice cannot be served and a separate procedure is necessary. In this case the leaseholder may make an application to the county court for a Vesting Order. If the court is satisfied as to the leaseholder's eligibility for a new lease and satisfied that all reasonable efforts have been made to locate the landlord, then it will, in effect, grant the lease to the leaseholder in the landlord's absence. The court will usually refer the case to the Tribunal for determination of the premium.

Should you require further information please click for our frequently asked questions regarding lease extensions.

Should you require assistance please call and ask for a member of our Team

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