When the lease period (“term”) under a long (more than 21 years term at the date of grant) residential lease drops below 80 years, it can get difficult to mortgage and therefore difficult to sell. However, it need not be a major problem, as almost all tenants who have held the lease in their own name for at least 2 years will have a statutory right to extend it. This does not apply to commercial leases, which have different rules for renewals.
Of course, the landlord may be prepared voluntarily to extend the lease, if terms can be agreed. Otherwise, you will have to follow the statutory procedure and, this can be lengthy and confusing, so I will try to demystify it by setting out the statutory position briefly .
1. Leaseholders of flats with a long lease have a statutory right to a new lease in substitution for their existing lease, with the term of the lease extended by 90 years (ie: added to the balance of the term of the original lease) and with any ground rent reduced to a peppercorn (a nominal) rent. Normally, the only qualifying condition is that the leaseholder must have held the lease for two years or more.
2. Such extended leases involve the tenant paying a premium or purchase price to the landlord. A tenant is also obliged to pay the landlord’s reasonable legal fees and valuer’s charges for dealing with the extension (as well as the tenant’s own, of course).
3. It is possible to agree the terms of a new lease without using the statutory procedure. However, often the terms on which the landlord is prepared to grant an extension are not as good as the terms that the statutory procedure involves and the landlord cannot be forced to agree an extended lease except by using the statutory procedure.
4. The premium payable by the tenant is calculated using a statutory formula and requires the involvement of a valuer, unless landlord and tenant can reach agreement on the premium. In this connection, “marriage value” is payable when the lease has less than 80 years to run and this can be significant.
5. It is possible to agree up to date wording for the lease in order to modernize the wording or remove a defect. Otherwise, the extended lease will be on the same terms (except as to the lease period, premium and rent) as the old lease.
6. The first step in the statutory procedure is service of the leaseholder’s notice of claim, which includes the suggested premium payable, any other suggested amendments or additions to the lease and a date (at least two months after service of the notice of claim) by which the landlord must serve a counter notice. Serving the notice of claim fixes the date for valuation of the lease.
7. In response, the landlord can serve a counter notice which can agree the proposed terms in whole or in part and state any counter proposals. If the landlord fails to serve a counter notice in time then, he loses the right to dispute the proposed terms as set out in the notice of claim – indeed, he can force the tenant to complete a new lease on those terms, by applying to the court for an order to that effect. Serving the notice of claim can therefore be a “point of no return” and it is important not to include over-generous terms in the notice when serving it.
Clearly, the most important issue is how much it will cost to extend a lease. Using the lease extension calculator provided online by the Leasehold Advisory Service gives an approximate idea of the premium payable by the tenant (plus costs). However, the calculator does not pretend to be completely accurate, as it makes some assumptions that may not in fact apply, so there may be some variation either way. Further the addition of the landlord’s costs will probably add a further £400 – £600 plus VAT to the bill.
Our charges for acting for a leaseholder in serving the notice of claim, advising on the counter notice terms (as far as we can – a valuer’s advice may be needed), approving the new lease and completing and registering it would normally be £600 plus a same day funds transfer fee of £35 + VAT (for both) and Land Registry copy charges (usually no more than £50, often as low as £8) and registration fee (which depends on the premium being paid for the new lease, but is usually £50).
If you are interested in this service, please call Justin Nelson on 01580 767100 or email us to discuss your particular circumstances. It would be useful to have ready to hand –
- a note of the start date of the lease (which is not necessarily the date the lease was granted)
- a note of the original length of the lease period
- a note of the ground rent currently payable under the lease
- an idea of the current market value of the property