A Lease Extension can help Unlock the Value of your Property
LEASE EXTENSIONS
Under the Leasehold Reform Housing and Urban Development Act 1993 (as amended) tenants are granted the right to require their Landlord to grant them a new lease for a term of 90 years, plus the present unexpired term of that lease, all at a peppercorn rent.
Why should we extend our leases?
• A lease is a wasting asset and with every year that passes it gets shorter. Eventually, your flat will become unmortgagable and difficult to sell. This applies to leases with less than 80 years left to run. You can also find it difficult to sell a lease with 80-85 years left. There are also some lenders who require lease to have at least 75 years remaining before they will agree to lend.
• A lease extension will preserve, and perhaps even increase, the value of your flat
• No ground rent will be payable
You should extend your lease if either
• You are planning to sell your flat soon – enfranchisements usually take longer than lease extensions
• Your building does not qualify for enfranchisement
What do I get when I extend under the Act?
A 90 year extension to the current balance of your lease and your ground rent will reduce to a peppercorn – i.e. you will pay no more ground rent
How do I qualify to extend my lease?
You must have owned your flat for at least 2 years. It is no longer necessary for you to live at your flat as well
I am in the process of selling my flat. Should I extend my lease before accepting an offer?
If you qualify, you can start the process for your buyer and on completion transfer the benefit of your claim to him/her– the buyer will then have the right to extend your lease immediately. If you choose to go down this route rather than extending your lease before selling, you should ensure that your buyer is aware of the situation when he/she makes their offer.
I am in the process of buying a flat. Do I still have to wait the 2 years?
Yes. However, as stated above, if your seller qualifies he can start the process for you and on completion transfer the benefit of his claim – you would then have the right to extend your lease immediately
If your conveyancing solicitor is unfamiliar with this procedure we can help with the preparation of the necessary documentation
How much will I have to pay for the lease extension?
A surveyor with the appropriate skill and experience can advise you as to the likely range of prices you can expect to pay. The surveyor should be able to provide a “best and worst” figure giving you the value from both the tenants’ and the freeholder’s perspective. It is essential that you have a proper valuation as the figure you propose in your initial notice to your freeholder must be realistic. For example, you cannot simply suggest a very low figure and then negotiate later.
Will you have to pay the freeholder’s costs?
The costs you have to pay are stipulated in the 1993 Act. Once you serve the initial notice the freeholder becomes entitled to his costs for ascertaining your right to a lease extension (checking the titles of their flats and the validity of the notice), together with his surveyor’s valuation fee and costs. He is not entitled to his surveyor’s negotiating fees or for any work carried out in connection with any application to the Leasehold Valuation Tribunal (LVT). For a block of up to 4 flats, you should budget for a total costs not exceeding approximately £1,500.00.
Can I deal with my freeholder direct?
Yes. However, your freeholder may not want to extend your lease and you cannot guarantee that the terms of the new lease will be favourable to you. For example, your freeholder may decide to grant a shorter extension or he may increase the ground rent. You will also have no say as to the price he will charge for the extension nor as regard his costs
How long will it take to complete the extension?
In very broad terms, the extension process is as follows
• We check the title to your flat, your freeholder’s title, your lease and your surveyor’s valuation. We prepare the initial notice for signature by you and then we serve it on your freeholder. This process usually takes about one month
• Once the initial notice has been served on your freeholder he has a minimum of 2 months to serve his counter-notice
• If your freeholder does not agree all the terms proposed in the notice, there is a 2 months negotiating period, during which time you and your freeholder will normally try and settle any outstanding matters
• If the outstanding matters are still not agreed, you can apply to the LVT for a determination at any time up to 6 months after the service of the freeholders counter-notice
• The LVT hearing usually takes place within a couple of months after an application has been made
• The LVT usually takes about 2 months to give its determination
• Completion usually takes place about 2 months after the LVT’s determination
The length of the process will all depend upon your freeholder. A sensible freeholder, sensibly advised, will be looking for a quick completion. However, if he is poorly advised the whole process could take a considerable amount of time. The majority of matters go no further than the negotiating period. In a few matters it becomes necessary to issue an application to the LVT. Only occasionally does a matter go all the way to a full hearing.
To discuss your requirements or to find out more contact Chris Sarsfield (cjs@meaby.co.uk) or Peter Russell (pjcr@meaby.co.uk) on 020 7703 5034
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.
