Extending Your Lease - The Process

The Leasehold Reform, Housing and Urban Development Act 1993 gives leaseholders the right to extend their leases. Under the Act, flat owners can require their freeholder to grant them a new lease with an additional term of 90 years at a peppercorn ground rent. If you have owned your property for two or more years, and the original lease was for a term of over 21 years, you will almost certainly be eligible to claim a lease extension.

The first step is to hire your professional team. You will need a solicitor and a surveyor to assist you with the process. The solicitor will deal with servicing the initial notice, agreeing the terms of the new lease and will deal with getting the new lease registered with the Land Registry. Your surveyor will provide you with valuation advice (so you know what you should expect to pay the freeholder for the lease extension) and can also handle any negotiation over price on your behalf.

The next step will be for your surveyor to produce the valuation. The valuation is carried out under Schedule 6 of the Act, and has three potential elements, comprising i) compensation for the reduction in the value of the landlord’s interest in the property created by the lease extension ii) where the lease has less than 80 years left to run, 50% of the ‘marriage value’ created by the lease extension and iii) compensation for the reduction in the value of any other property owned by the landlord. Marriage value is often a significant part of the price payable for the lease extension so if possible it is always significantly better for the leaseholder if the lease is extended before the 80 years marriage value threshold.

Once you have the valuation you might decide to try to negotiate informally with the landlord. This often works well if you already have a good relationship with the landlord, and / or if the premium is relatively modest. However, if this is not possible you will need to instruct a solicitor to serve a formal notice of claim. The notice needs to include a proposed premium. Generally the proposed premium should be a bit on the low side to leave some room for negotiation, but it can’t be too low or you might invalidate the notice (your valuer will be able to guide you). The freeholder will typically serve a counter-notice, asking for more money. Likewise the freeholder’s counter-notice needs to include a proposed premium, and the freeholder’s proposed premium tends to be a bit on the high side, again to leave room for negotiation.

Once the landlord’s counter-notice is received your solicitor will get to work on agreeing the terms of the new lease with the landlord’s solicitor, and your surveyor will get to work on agree the price for the lease extension with the landlord’s surveyor. There is a period of up to six months for the terms of acquisition to be agreed. If terms can’t be agreed your solicitor will need to apply to the First Tier Tribunal to have the outstanding terms determined. However, the vast majority of lease extension cases will be settled by negotiation, even after a Tribunal application has been made.

Once the acquisition terms are agreed the parties have up to two months to exchange contracts. If the freeholder refuses to exchange contract you can apply to court, and the court will require the freeholder to comply. On completion your solicitor will transfer the agreed price to the freehold and will register the new lease with the Land Registry.

You can contact the author of this article, Matthew Price BSc MRICS of Peter Barry Surveyors, if you are considering a lease extension.

If you would like to ask Matthew Price a question about extending your lease you can do so at www.leaseextensionadvice.com  

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