What is a Residential leasehold extension?
If you own a residential flat held on a long lease you may think you own your flat outright and, to an extent, you do but only for the term of years granted by the lease and each year that passes that term is reduced.
At the end of the term, if you have not extended your lease, the right to possess the flat will revert to your landlord. For this reason it is important to take advantage of the right to extend your lease under the Leasehold Reform, Housing and Urban Development Act 1993 (“the 1993 Act”).
The key question for many long leaseholders is, “when is best to do it?”
As each year passes the premium payable for an extended lease goes up. For leases of less than 80 years something called the “marriage value” kicks in when calculating the premium for the extended lease. Leases with a term of less than 60 years can be unattractive to lenders who may not offer a mortgage on the property. The view of the writer is, if you can afford to, extend your lease before the term drops below 80 years.
Extending a lease is a costly business – not only will you have to pay the purchase price for the extended lease and the cost of your surveyor and solicitor but the 1993 Act also requires you to pay the legal and surveyor costs of your landlord.
Some important facts to know about extending your lease under the 1993 Act:-
- To be eligible the original lease term must have been in excess of 21 years.
- A long leaseholder is entitled to a term equal to the unexpired residue of the existing lease plus 90 years (so if you have 81 years left to run, your new lease term will be 171 years).
- The rent payable under your new lease will be a “peppercorn” (a dated term meaning nil).
- The terms of the new lease will generally mirror your existing lease (save for correction of defects and modernisation).
- You must have owned the lease for a minimum period of two years (therefore if you plan on selling your home it may be prudent for you to commence the extension and assign the right to extend the lease to the new owner.
- The notice of claim to assert your right to an extended lease term must contain a premium proposal. It is therefore important to obtain the guidance of a surveyor who specialises in residential lease extensions.
- Once the notice has been served, your landlord is entitled to request a deposit from you (which will be the higher of £250 or 10% of the premium proposed by you in the initial notice).
- Once your landlord has taken the advice of his solicitor and surveyor, a counter notice will be served suggesting a counter premium and terms (do not expect the suggested premium to match that which you have proposed!). Some time is then spent negotiating the premium and other terms of the new lease).
- Extending your lease can be a lengthy process but once the initial notice asserting the claim is served, the premium is valued as at the date of the notice.
- Depending on the value of the new lease, Stamp Duty Land Tax may be payable on the premium.
For further information regarding residential lease extensions, please contact Nicky Cleightonhills on 0207 7035034 or Ncleightonhills@meaby.co.uk.