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