In today’s economic climate, it is understandable that tenants with long leases will be keen to safeguard the value of their flats. One way to do this is by extending the term of the lease by using the provisions of the Leasehold Reform, Housing and Urban Development Act 1993 (as amended) (“the 1993 Act”). This article will discuss the formal procedure that should be followed when a tenant claims a lease extension.
A qualifying tenant has the right to acquire a new lease for a term 90 years longer than the unexpired term of the existing lease and the existing lease will be replaced. The ground rent will be a “peppercorn” as from the date of completion of the new lease.
In essence, you will be entitled to extend the lease if you have been registered as proprietor of the flat for the last two years (but you do not have to be living in it) and the original term granted by the existing lease was for more than 21 years. However, there are certain exceptions: for example, a lease granted by a charitable housing trust for the purposes of its charitable functions will not qualify.
Broadly, to exercise your right to claim a lease extension, a notice of claim must be served on the landlord. The notice of claim will provide prescribed information including the premium you are proposing to pay. You must allow the landlord at least two months to respond by serving a counter-notice. The landlord is entitled to require payment of a deposit of £250, or 10% of the premium proposed if greater, within 14 days.
If the landlord accepts your right to a lease extension but not the premium offered, there will usually follow a period of negotiation between the parties’ valuers. Not less than two nor more than six months from the landlord’s counter-notice, either party may apply to the Leasehold Valuation Tribunal for the premium to be determined. It is worth noting that the whole process could take up to a year.
What will it cost?
The date of service of the notice of claim will be the valuation date for determining the premium payable to the landlord. The calculation of the premium is complex. It is therefore recommended that you should seek advice from a valuer specialising in this field.
Generally, the premium is based on the diminution in the open market value of the landlord’s interest in your flat. The landlord might also be entitled to compensation for loss of value to other property belonging to the landlord.
Please note that the premium will increase significantly if your lease has less than 80 years to run. This is because the landlord will then be entitled to half of the “marriage value” – essentially the value unlocked by granting the new extended lease. You should therefore act quickly if your lease is close to falling below 80 years.
In addition to your own professional advisors’ fees, you will be responsible for the landlord’s reasonable costs of investigating your claim and the valuation fees and the conveyancing work, these will include the costs from the date when the notice of claim was served.
The process can take longer and generate significant extra complexity if:
- there is an intermediate landlord sitting between you and the superior landlord / freeholder who is competent to give you the extended lease
- there are extra features that you enjoy with your property (a parking space, garage, roof access, for example)
- you are selling the property at the same time as you are extending your lease
It is essential to give lease extension plenty of forethought and allow plenty of time. We often discover that a leaseholder has decided to extend a lease only at a moment when their property is put on the market for sale (when, perhaps, the market decides that it would like your lease to be longer). This is often a little too late and can make you a hostage to fortune in the lease extension negotiations, and in the sale. Better to do it well beforehand, if you can.
If you are interested in extending your lease or in making enquiries about the possibility of doing so, please contact the partner at Hunters having responsibility for your legal matters, or (for new enquiries) please contact a member of our Residential Property team.
This article is based on the law as at 16th July 2015. Although we endeavour to ensure that the content is accurate and up to date as at that date, it is designed to provide general guidance only and is not intended to be comprehensive or to constitute professional advice. Specific advice should always be sought, and you should only rely on advice which is given by reference to particular facts and circumstances.