Author: Tamsin Reader
Since 1993, Leaseholders have been able to claim an extended Lease from their Landlord(s). With flats with less than 80 years it may be difficult to sell or secure a mortgage on. Extending your Lease either by agreement, or otherwise, overcomes this problem and makes your property more desirable and in most cases a more valuable asset.
How can you go about it? There are two ways of doing it, by agreement or by utilising the statutory provisions contained in the Leasehold Reform Housing and Urban Development Act 1993 (LRHUDA 1993).
If you have agreed a Lease extension with the Freeholder then the process is fairly straightforward. You will need to negotiate the terms of the extended Lease and have the necessary documentation completed. Obviously none of the restrictions and protections which are referred to in this article will apply to a voluntary extension and whilst most Lessees would be well advised to use the procedure set out below, there are occasions when it will be a more simple to follow the voluntary process.
Statutory Extension under LRHUDA 1993
Owners of long Leasehold flats can apply for a Lease extension. Where there are two more long Leaseholds it is the Tenant in possession who has the right.
Who does not qualify?
Section 5 of the Act provides that owners of a business Lease, a Lease where the immediate Landlord is a Charitable Housing Trust; and Lease granted by a sub-demise out of a superior Lease other than a long Lease and where such grant was a breach of the Lease and which has not been waived by the Landlord are all excluded from apply for an extended Lease.
There had previously been a requirement that the qualifying Tenant had to actually occupy the flat as his only or principle home for the last 3 years to be able to extend the Lease. This has now been changed and the new condition is that the Tenant has been a qualifying Tenant for 2 years. The period of ownership is measured back from the date when the Notice of Claim is given to the Landlord.
There are particular calculations for the premium payable for the new Lease. The date of valuation is the date of service of the Section 42 Notice. A valuer should be instructed to provide a formal report and figure in order to start the claim. The premium should represent the diminution in the value of the Landlord’s interest and include compensation for loss in value of other property owned by the Freeholder.
Starting the Claim
A Notice needs to be prepared and signed setting out basic details about the flat, including the premium price that you would like to pay for the extension. It is recommended that you instruct a solicitor to prepare the initial Notice.
The Freeholder then has the right to respond by preparing a Counter-Notice. The Landlord must give a Counter-Notice by the date specified in your Notice of Claim. Failure to do so means the Tenant can apply to the Court for a new Lease on the terms set out in the Notice.
The Counter-Notice must specify if the Landlord refuses the Claim and the reasons why or, if they admit the Claim, set out which of the Tenant’s proposals are accepted by the Landlord and which are not. If they do not accept some of the proposals, they must set out any counter proposals and whether they require a payment of a statutory deposit of 10% of the premium offered. In addition to this, they must specify an address in England and Wales at which Notices under the Act may be given to the Landlord.
It is usual that negotiations can then take place but ultimately if no agreement is reached, an Application to the First Tier Property Chamber Tribunal will be necessary. If terms remain in dispute after 2 months from when the Counter-Notice is served, the Landlord or Tenant must apply to the First Tier Tribunal within 4 months of that date. Whilst negotiations can continue within this period, the Tribunal can make a ruling with regard to the disputed terms.
Once agreement has been reached, the parties will then have 2 months within which to execute the new Lease.
Practical considerations before starting the Claim
You should be prepared to have the 10% deposit available before the Notice is served with sufficient funds for the rest of the premium as this will be payable as soon as the new Lease is ready. Time limits are strict and failure to meet them may result in the Lessee having to wait 12 months before being able to serve a new Notice and the premium is likely to increase.
What will you get?
Following a successful Claim for a Lease extension and a payment of a premium, a new Lease will be entered into between the Lessee and the Landlord. The new Lease will be for a term expiring 90 years after the existing Lease and will be at a peppercorn rent. The new Lease is presumed to be on the same terms as the pre-existing Lease but parties are free to agree new terms and amendments during the course of their negotiations.
Lease extensions are an important consideration if you do own a Freehold. If you have less than 80 years remaining, you may wish to consider starting the Lease extension process. The less time you have remaining on a Lease, the more it is likely you will have to pay.