How to extend your lease: the process from start to finish

Year Published: 2018

The area of Lease Extensions is a rather complex area of law and not for the faint hearted, there are a variety of pitfalls such as locating the “Competent Landlord” in the first place, negotiating the terms of your extension and how to navigate the court’s involvement should an agreement not be reached. The following guide should help demystifying the process however, if you have any queries or would like to extend your lease, please to get in touch.

Can you extend your lease if it’s too short?

The legislation: The act that gives you the right as a Tenant to extend your lease is the Leasehold Reform Housing & Urban Development Act 1993 (LRHUDA). This same act also gives your Landlord the right to charge a premium or a fee in exchange for extending your lease.

James Procter, Commercial Property Solicitor at SAS Daniels LLP

James Procter, Commercial Property Solicitor

Are you entitled to extend your lease?

If you meet the requirements as set out in LRHUDA – yes.

The requirements state you must have owned the property for at least 2 years and the original lease must have been at least 21 years or more. If this is the case, you may be able to extend your lease by a term of 90 years which will be added to your current term.

Competent Landlords: who are they?

A Competent Landlord is defined as the person who can grant you an extension of your lease under LRHUDA.

The reason for the distinction here and the person not simply being your direct Landlord is because, depending on the structure of your legal title, someone else may in fact be the Competent Landlord. For example, your Landlord may have their own ‘head lease’ from which your lease is granted. In this example, this could mean your Landlord’s Landlord is in fact the Competent Landlord. As you can see, it can quickly get confusing! Since the LRHUDA requires you to contact the Competent Landlord for any extension, this requires research in order to correctly identify them, with which we would be happy to help.

Informal or formal route?

Informal route:

Once the Competent Landlord has been identified, you may wish to simply make an offer of what you think is a reasonable premium. It is possible to obtain an extension this way and if the Competent Landlord is agreeable, it can save a lot of time and costs.

What premium should you offer?

You could estimate a premium yourself and offer this amount, however there is a more accurate way that will also be useful later on should court proceedings be required. You can instruct a surveyor, who can carry out a comprehensive review and report on your lease and provide you with a professional valuation of what premium you should be paying.

Formal route:

This route applies if the Competent Landlord does not accept your offer or will not extend your lease other than by the formal route. It is known generally as a “Section 42 Notice”. Once you have your professional valuation, you can serve a Section 42 Notice on the Competent Landlord, they have 2 months to respond to this via a Counter-Notice. If they accept your proposal, you can proceed straight to the extension of your lease. If they object to your notice and make a counter offer, you have a further 2 months to respond.

What if no agreement can be reached?

If an agreement cannot be reached, either you or the Competent Landlord is entitled to apply to the Leasehold Valuation Tribunal (LVT), here they will decide the value of the premium and their decision is final. This must be no later than 6 months from receipt of the Counter-Notice from the Competent Landlord. Failure to do so will result in being liable for the Competent Landlord’s legal and surveyor’s costs, as well as the more alarming fact that you cannot make a new application to the LVT for another year.

End result:

Whether you agree on a premium using the informal route, the formal route of using a Section 42 Notice or by going through the LVT, the end result is you will receive an extended lease once you have paid the agreed premium. Be aware, up until the LVT, you will be responsible for the Competent Landlord’s reasonable legal and surveyor’s costs as well as your own.

What if the Competent Landlord cannot be found or is missing?

An extension is still possible:  Should it be the case that the Competent Landlord is missing or not contactable. For example, if the Competent Landlord was a limited company that has since been wound up or gone into liquidation. It requires a different method than mentioned above but it is still possible to obtain an extension by asking the court to stand in their shoes. If you believe this applies to you, please get in touch to discuss this further.

Why extend your lease? The benefits:

Lenders: It is a concern amongst property buyers and sellers that lenders are not willing to lend against leasehold properties where the lease is too short. Some high street lenders require the lease to have at least 75 years remaining and some even require 100 years.

Selling your property: For a similar reason as above, if your property has a lease with a low number of years remaining, there is a good chance that potential buyers will not be able to obtain a mortgage on the property as their bank will not lend against it. As a result, you could struggle marketing and selling your property.

No more ground rent: Using the formal route described above, it is possible that when your lease is extended, it can be extended without ground rent. Therefore you will make a saving each year as a result.

If you have a leasehold property and you are concerned about the remaining term of the lease or would just like to extend your lease, we can provide you with advice and assist with the process from start to finish.

For more information on how to extend your lease or any other property matters,  please contact James Procter in our Commercial Property team on 0161 475 7648 or email [email protected].

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