Lease Extension of Flats

Why should I extend my lease now?

If the term of your flat’s lease has less than 80 years remaining then it becomes much harder to deal with (for example, selling or re-mortgaging) as it becomes significantly more difficult to obtain mortgage finance once the lease term falls below 80 years. As the formal lease extension procedure is not a quick process, we recommend commencing the process to extend your lease as soon as possible to avoid any unnecessary delays and/or financial consequences when coming to sell or re-mortgage your flat.

From a cost perspective, if the existing lease term falls below 80 years, then it also becomes considerably more expensive to extend the lease (often doubling the premium) as there is an additional element of the premium payable which is called ‘marriage value’. Marriage value is not payable on lease extensions which have over 80 years existing on the term at the time that the lease extension notice is served on the landlord.

Additionally, as soon as you complete your lease extension you do not have to pay any ground rent for the remainder of the term of the lease. This is particularly important and useful if you have a significant or onerous ground rent as you can utilise the statutory lease extension provisions to reduce such a ground rent which may be affecting a sale, re-mortgage or other dealing of your property.

Although it is essential to act before your lease term falls below 80 years, with the increased publicity and calls for leasehold reform we have found that purchasers are more concerned than ever before about the length of a lease and level of ground rent payable. We often find that lease extensions and the cost of the extension are being considered by purchasers even when a term is between 90 and 100 years.

The longer the lease, the less it will cost you to extend and therefore we would always recommend acting without delay.

What do I get when I extend my lease?

When you proceed through the statutory lease extension procedure you compel your landlord to grant you a lease extension, and you will be entitled to an additional 90 years on top of the existing term of the lease and your ground rent will fall to nil (also known as ‘a peppercorn’) from the date that the lease extension is completed.

For example, if you have a lease that has 82 years remaining when you serve the lease extension notice, then once the lease extension has been completed, you will have a lease that has 172 years remaining on the lease term and you will not need to think about extending the lease again in your lifetime. In addition, your ground rent will be abolished so there will be no ground rent payable for the remaining 172 years.

How do I qualify to make a statutory lease extension claim?

To qualify for a lease extension claim, the following conditions must be fulfilled:-

  1. You must own the property for two years before you can serve a lease extension claim notice on your landlord (unless you are purchasing a property with the benefit of a lease extension claim in which case your seller must have owned the property for two years before a lease extension claim notice can be served); and
  2. Your flat must be held under a long lease (a lease which was originally granted for a term of at least 21 years); and
  3. The lease must be a residential lease of a flat (not a business or commercial lease).

What is the cost of extending my lease?

The total cost of extending your lease will be comprised of the following:-

  1. Premium – this is the payment that will be made to the landlord in consideration for the grant of the lease extension. You will need to instruct a specialist lease extension valuer at the outset to advise you of the estimated premium payable for the lease extension and to advise you of the initial offer premium to put forward to the landlord.
  2. Your solicitor’s costs – this will include the cost of your solicitor plus any applicable disbursements incurred, for example, Land Registry fees, Tribunal fees, bank charges, stamp duty, etc.
  3. Your valuer’s costs – this will include your specialist lease extension valuer’s costs in connection with providing an initial valuation report to you of the expected premium payable for the lease extension and the costs to negotiate the premium on your behalf to ensure the lowest possible premium is paid for the lease extension.
  4. Your landlord’s reasonable recoverable costs – this will include the reasonable costs of the landlord’s solicitor and valuer, plus any of the landlord’s disbursements in connection with the lease extension procedure. It is important to note that you are not responsible for any of the landlord’s costs in connection with negotiating the premium or any protracted negotiations in respect of the terms of the new lease. If the matter ends up being determined by the Tribunal then you will not be responsible for the landlord’s costs in connection with any preparation or attendance at the Tribunal hearing.
  5. Administration costs – if there is a third party to the lease, such as a management company, then they may charge a small fee for arranging to approve and sign the lease on behalf of the third party.

In addition, the landlord is entitled to request 10% of the premium offered to them in the initial notice as a deposit at the outset of the lease extension. This will be deducted from the final agreed premium on completion of the lease extension or if for any reason the lease extension does not complete, then the landlord may deduct their costs from the deposit and then must return any balance to you.

How long will it take to extend my lease?

We usually estimate that the procedure will take 6-12 months from the service of the initial notice to completion of the lease extension.

It is important to note that once the offer notice is served on the landlord to commence your claim for a lease extension the valuation date is ‘crystallised’. This means that the premium payable to the landlord is calculated in accordance with this fixed date (and the term that is left on the lease on this fixed date). Therefore, it doesn’t matter if the lease extension claim takes a year to complete, the premium is calculated based on the number of years left on the lease when the notice is served on the landlord and not when the lease extension completes.

We work with each client and their personal objectives to either speed up or slow down completion of their lease extension. For example, if you wanted to ensure their notice was served as soon as possible to crystallise the valuation date but wanted to delay the completion of the lease extension (and the payment of the agreed premium to the landlord), we would seek to delay the process for you. Conversely, if you are trying to sell or remortgage your flat and would like to complete the lease extension as soon as possible then we would work with all the parties to try and accelerate completion of the lease extension.

Please note that the Land Registry is taking around 6 months to register a new lease after completion of a lease extension, however, if you are intending to deal with the property (for example, sell or remortgage), then we can provide the Land Registry with evidence of an impending transaction and request that they expedite the registration.

What is the procedure for extending my lease?

The lease extension procedure is commenced when the tenant serves a formal notice on the landlord known as the ‘section 42 notice’ offering the premium that they are willing to pay for the lease extension. The premium offered will be advised by the tenant’s specialist lease extension valuer and must be a realistic offer. The formal offer notice must provide a deadline which is at least two months from the date of the receipt of the formal offer notice by which the landlord must respond with their formal counter-notice.

The landlord may respond formally in one of the following three ways:-

  1. Admit that the tenant has the right to extend their lease but dispute the premium offered. The landlord must then provide a counter-offer of the premium that they will accept for the lease extension.
  2. Admit that the tenant has the right to extend their lease and accept all the terms in the formal offer notice including the premium offered. In this case the lease extension would proceed to completion.
  3. Dispute that the tenant has the right to extend their lease (there are very limited ways that the landlord can dispute a statutory lease extension claim). The tenant can then apply to the court for a declaration that they are entitled to extend their lease.

The landlord may not respond at all in which case the tenant is then entitled to their lease extension on the terms set out in their formal offer notice, including the premium offered.

In the vast majority of lease extension cases the landlord will proceed via option 1. Following option 1, after the landlord serves their counter-notice, there is an initial period of six months from the date of the counter-notice during which the parties’ valuers will enter into negotiations with a view to agreeing the premium and the parties’ solicitors will enter negotiations with a view to agreeing the terms of the new lease.

If the premium and/or terms of the lease cannot be agreed within this six month time period then an application will be made to the Tribunal so that the Tribunal can determine the premium payable and/or the terms of the lease. A Tribunal date will be set approximately 4-6 months after the application is made. The parties can continue to negotiate the premium during this time period and if all the terms of the lease extension (including the premium and terms of the lease) are agreed before the Tribunal date then the Tribunal proceedings can be vacated.

Once the terms of the lease extension are agreed between the parties or determined by the Tribunal, the parties have a maximum period of four months to complete the lease extension, which is when the premium and associated costs are paid to the landlord’s solicitors.

If the parties are unable complete within four months an application would need to be made to Court to request an extension of time and whether an extension is granted will be in the Court’s discretion taking into account the reasons for the delay or whether the claim should be withdrawn.

Following completion of the lease extension, we will deal with all the post-completion formalities on your behalf, including paying stamp duty (if any) and registering the new lease at HM Land Registry.

How can LEASE Law help me extend my lease?

LEASE Law are specialist solicitors who can act on your behalf in respect of the legal requirements for making a statutory lease extension claim. In the vast majority of cases, we are able to offer a fixed fee for acting for the tenant.

The work that we will carry out for you includes preparing and serving the initial notice on the landlord, receiving the counter-notice from the landlord, negotiating the terms of the new lease, completing the lease extension and registering the new lease at HM Land Registry. We will also liaise with your valuer in respect of the premium as and when necessary.

We can also recommend specialist lease extension valuers who have extensive experience and expertise in this area to ensure that the premium that you pay for the lease extension is as low as possible. Your valuer will provide you with an initial report which will advise you on the premium that you can expect to pay following negotiations and will also recommend the offer premium to put into your initial offer notice. Your valuer will also negotiate the premium with the landlord’s valuer on your behalf following the service of the initial notice.

Please contact Jade Wilson (jade@leaselaw.co.uk or 0204 511 9100) or Joanna Botley (joanna@leaselaw.co.uk or 0204 511 9101) for a no obligation discussion about your potential lease extension.