Extending a Lease – getting started
The majority of the flats in England and Wales are held on ‘Long Leases’. Historically residential leases were usually 99 years, but many modern leases can be 125 years or more. Leases on ex-local authority flats are also normally granted for 125 years.
A leasehold interest in a property is a diminishing asset; as the unexpired term of the lease gets shorter the value of the property falls. When the lease expires the property will, in theory, revert to the landlord and it is, therefore, necessary to ‘extend’ the lease well before this happens.
Strictly speaking, there is no such thing as a lease extension. The Leasehold Reform, Housing and Urban Development Act 1993 gives lessees the right to surrender the existing lease and acquire a new lease on their property.
The new lease will be on the same terms as the existing lease except for the following:-
- The ‘new’ lease will be at a ‘peppercorn’ ground rent (effectively no ground rent)
- The new lease will be for a term expiring 90 years after the end date of the existing lease.
This means that if the lessee is paying £100 a year ground rent at the moment they will no longer have to pay this. If the existing lease were to have an unexpired term of 75 years the new lease would be for a term of 75 + 90 years (i.e. 165 years).
To obtain a new lease the lessee will have to pay a premium to the landlord and this is calculated in accordance with Section 13 of The Leasehold Reform, Housing and Urban Development Act 1993. The premium compensated the landlord for the fact that they will no longer receive ground rent and they will not get possession of the flat when the original lease expires. Generally the shorter the existing lease the higher the premium for the new lease will be. It makes sense, therefore, for the owner of a leasehold flat to apply for a new lease sooner rather than later. For example, I recently carried out a valuation on a flat that had lease with just over 100 years unexpired and the premium for the new lease was just over £2,000. On the other hand I have also valued a flat where the unexpired term was 16 years and the premium in this case was over £150,000!
So, how do you start the application process?
Firstly you have to establish that you are a ‘Qualifying Tenant’ under The Leasehold Reform, Housing and Urban Development Act 1993. To be a qualifying tenant you will have to have been the registered owner of a property with a long lease for at least two years. The term registered is important, as the two year qualification period starts from the date that your ownership of the lease was registered at Land Registry. This will usually be later than the date that you completed the purchase or moved into the flat.
For the purposes of the Act, ‘long lease’ means that the original lease must have been for a fixed term of more than 21 years.
You must also be the tenant of a flat. This is defined in The Leasehold Reform, Housing and Urban Development Act 1993 as follows:-
- It forms part of a larger building
- It is constructed or adapted for use for the purposes of a dwelling, and
- Either the whole or a material part of which lies above or below some other part of the building
The above definition is a bit verbose, but it basically means any property that could be called a flat whether it is purpose built or converted. It does, however, specifically exclude a house, as leasehold houses are covered under other legislation.
Having established that you are ‘Qualifying Tenant’ and that you occupy a ‘Qualifying Flat’ you need to check who the landlord is. Usually, but not always, this will be the freeholder of the building containing the flat. In some cases you will be paying your ground rent directly to the freeholder and you will already have their name and address. Quite often, however, you will have no direct contact with the freeholder and you may be paying your ground rent and other charges to a Management Company.
If you do not know the name and address of the freeholder you could check this on the Land Register. The Leasehold Reform, Housing and Urban Development Act 1993 (Section 41) also allows you to serve a notice on any person receiving the rent on behalf of the landlord requiring them to give you the name and address of the freeholder.
Having established that you have the legal right to acquire a new lease, and armed with the name and address of the freeholder (landlord), you are now in a position to start the formal process. You must be aware, however, that it is a formal and legal process. Do not fall into the trap of negotiating with freeholder on an informal basis. If you start an informal process and the freeholder later changes their mind you will not have any protection under The Leasehold Reform, Housing and Urban Development Act 1993.
To start the formal process you must serve a notice on the freeholder under Section 42 of The Leasehold Reform, Housing and Urban Development Act 1993. There is no prescribed form for the notice and it does not have to be served by a solicitor, but it must include the following information:-
- The full name of the tenant/s and the address of the flat
- Contain sufficient information about the flat to identify the property to which the claim relates
- Contain particulars of the lease, including the date it was entered into, the term for which it was granted and the date of the commencement of the term
- Specify the premium which the tenant proposes to pay
- Specify any terms which the tenant proposes should be contained in the new lease
- State the name of the person (if any) appointed by the tenant to act on their behalf and an address in England and Wales at which notices may be given to such person
- Specify the date by which the landlord must respond to the notice. (not less than 2 months after the date the notice is given)
- Be signed personally by the tenant or each joint tenant
The last point is particularly important. The notice is only valid if it is signed personally by the tenant/s. No one else can sign on your behalf, even if they have power of attorney.
If you would like to ask Matthew Price a question about extending your lease you can do so at www.leaseextensionadvice.com.