Legal Systems

Summary relating to Lease Extensions

Current legislation, under the Leasehold Reform Housing & Urban Development Act 1993, provides Leaseholders with an opportunity to extend their lease for an additional 90 years over and above their current term at a peppercorn rent, which is basically rent free.

This can be beneficial especially if you are looking to sell your property, as a longer Lease term will increase its value, or simply because the current Lease may have a clause permitting a significant rise in Ground Rent. By obtaining a lease extension, any Ground Rent is kept to a bare minimum.

A Landlord is only obliged to grant a lease extension where a formal Notice is served upon him. In order to serve such a Notice it is necessary that you are a residential Tenant, that the term of the original Lease was in excess of 21 years and that you have owned it for more than 2 years. If the Lease term is shorter but has a clause providing a right of perpetual renewal, then you still have a right to apply.

The Landlord must be the person who has sufficient interest in the property to be able to grant you the extension. That will either be the Freeholder or the Headlease holder where they have sufficient years left on their term which would cover the extension period. It should be noted that this process cannot be carried out if the Landlord is a charitable housing trust.

In a situation where you want to extend the Lease to effect a resale, it is possible to begin the process and then pass your rights over to the buyer, even though they will not have been the owners of the Lease for two years. Similarly, if the qualifying Leaseholder were to die before making an application, his personal representative would be entitled to apply within 2 years on receipt of a Grant of Probate or Letters of Administration.

It is strongly recommended that you do not apply for an extension unless a proper valuation is undertaken to advise on the amount of the offer to be made to the Landlord. It will also give you an indication of the range of possible prices within which your application could be settled.

Once a Notice is served the valuation will based around the date of service, no matter how long the process may then take. At that point you will also become liable for all the Landlords reasonable costs in relation to the Notice. The Landlord is also entitled to require payment of a deposit, being either 10% of the proposed purchase price or £250, whichever is the greater.

A Counter-Notice should then be completed by the Landlord either agreeing the extension and the terms specified, denying your right with reasons which will mean the matter will need to be determined by the Court, or claiming a right of redevelopment (if the Lease has less than 5 years remaining) where he needs to prove to the Court that he intends to demolish and redevelop the building and therefore need not extend the Lease.

At this point, if the parties are in agreement, the new Lease will be signed and the purchase will be completed.

If the parties cannot agree on the new terms or price of the extension, they must enter into negotiations. The law provides for a minimum of two and a maximum of six months to allow for negotiations to take place. Only after this time can either party apply to the Land Valuation Tribunal (LVT) to determine the issue. Once the LVT decides the issue the Landlord must provide the draft Lease and the parties have two months to complete the transaction by which time the Leaseholder can enforce it through the Courts if the Landlord has failed to comply.

It is important to note that should you ever withdraw your application after you serve the Notice on the Landlord, you remain liable to pay his costs until that point and no further application can be made for another 12 months.

Due to the nature of the process and its strict deadlines it is not uncommon for applications to be deemed withdrawn leaving you liable for costs and unable to extend your Lease for a further 12 months where the procedures have not been complied with appropriately. It is therefore highly recommended that you instruct someone who can guide you through this process.

Darlingtons offer a fixed fee specialist lease extension service in this area, including:

•          Preparation of the application Notice.

•          Service of the Notice on the appropriate Landlord.

•          Instructing Valuers on your behalf.

•          Negotiating with your Landlord.

•          Conveyance of the new Lease

•          Where necessary, making an application to the Leasehold Valuation Tribunal.