Leasehold Extension Explained

Year Published: 2017

If you own a flat you will no doubt be paying ground rent or a yearly figure towards the leasehold for the property. Each leasehold has a set number of years and as this number decreases so does the value of the lease, making it harder to sell the property. You can look to extend your lease however, this can be a complex process so it’s key to make sure you know the facts. Our guide below, answers all your questions regarding leasehold extension.

Can I extend my lease?

You can approach your landlord at any time to request and negotiate an extension of your lease. However, unless you apply for an extension under the Leasehold Reform, Housing and Urban Development Act 1993 (‘the Act’), your landlord is not obliged to grant you an extension.

Under the Act you are granted a ‘statutory lease extension’. This is the right to a new lease for a term that is equal to the outstanding time on your existing lease plus 90 years. The additional 90 years will be given with what is known as a ‘peppercorn rent’. A peppercorn rent essentially means that any responsibility to pay ground rent under the existing lease is extinguished. Under the Act the new lease will otherwise be on the same terms as the existing lease.

Do I qualify to apply for a leasehold extension under the Act?

You qualify to apply for a leasehold extension under the Act if both of the following conditions are met:

  1. The term of the lease, when it was originally granted, was over 21 years; and
  2. You have been the registered owner of the lease for at least 2 years (you do not have to have actually lived in the property).

Are there any circumstances where I won’t qualify for a lease extension under the Act, even if both of the above conditions are met?

Yes, you will not be entitled to a statutory lease extension if:

  1. The property is owned by the Crown (i.e. the Monarch); or
  2. The freehold of the property is owned by the National Trust; or
  3. The building is within a cathedral precinct; or
  4. The landlord is a charitable housing trust and the property is provided as part of its charity functions; or
  5. The lease is a commercial / business lease.

What will the lease extension cost?

You will also need to instruct a solicitor to serve the Tenant’s Section 42 Notice, which initiates the statutory extension process. The solicitor will also deal with the negotiation, completion and registration of the new lease.

When the Tenant’s Section 42 Notice is served, you will be required to pay a deposit of either 10% of the premium set out in that Notice, or £250 (as set out in the Act), whichever is the greater amount.

It’s also important to note that you will be responsible for the landlord’s legal and valuation costs. If you are applying for a statutory lease extension, these costs are restricted to the landlord’s ‘reasonable’ legal and valuation costs. This cost can be different for each application however, it does mean that the landlord cannot claim disproportionate or extortionate costs.

What are the benefits of applying for a leasehold extension?

There are many benefits of extending the lease and the procedure benefits the leaseholder as:

  1. An application under the Act requires the landlord to grant you a new lease on essentially the same terms as the existing lease, but with the benefits to the leaseholder of extending the remaining term by 90 years and extinguishing the ground rent.
  2. When the Tenant’s section 42 Notice is served, the valuation of the extended lease is fixed as at that date.
  3. Under the Act you will only be responsible for the landlord’s ‘reasonable’ legal and valuation costs.
  4. An application under the Act is bound by strict statutory time limits, which means the process does not stall.
  5. If the premium cannot be agreed, you have the option of asking a tribunal to establish the premium.

When should I apply to extend my lease?

It is worth applying to extend your lease sooner rather than later and certainly when there is more than 80 years remaining on the term.

When a lease is extended, the value of the lease is increased. When extending a lease with a remaining term of less than 80 years, the landlord is entitled to charge half of the value of this increase (‘the Marriage Value’) in addition to the premium.

It is also worth noting that some mortgage lenders will not lend on leasehold properties which have a short term remaining on the lease (e.g. less than 80 years). This may make it harder to sell your property.

Do I need to instruct a solicitor to deal with the lease extension?

There are a number of reasons why you should instruct a solicitor to deal with your lease extension:

  1. Your solicitor will prepare the relevant Notices on your behalf. The Act requires that Notices are served in accordance with strict guidelines and time limits.
  2. Your solicitor will ensure that the Tenant’s Notice is served on the ‘qualifying Landlord’. This is not always the landlord set out in your lease.
  3. Your solicitor will protect the Tenant’s Notice by registering it against the qualifying landlord’s title.
  4. Your solicitor will negotiate, prepare and complete the new lease.
  5. Your solicitor will deal with the necessary Land Registration formalities in respect of the new lease.

For more information about leasehold extension and the process involved, please contact our Conveyancing team on 0161 475 7676.

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