If you are looking to sell your flat, or indeed you have purchased a property where the lease term is quite low, you may be considering a lease extension.
The procedure for extending your lease, is currently under review by the Law Commission, but there are no immediate plans by the Government to take any steps to implement any recommendations made by the Law Commission, and therefore it is unlikely that the current provisions in relation to lease extensions were alter in the future.
In order therefore that you can understand your options in terms of a lease extension, we set out below a brief summary, of the steps that are required in relation to a lease extension.
‣ The process starts by an informal contact to your landlord. That contact will enquire as to whether or not your landlord is willing to take the step of granting to you a lease extension voluntarily, and therefore without the need to incur the cost set out under statute.
‣ If your landlord agrees to progress with an informal lease extension, they will take the step of obtaining their own valuation, for which they will seek costs from you; and they will then make to you an offer in terms of the extension of your lease.
‣ The term by which the landlord may agree to extend your lease can range from anywhere to a simple increase back to a 99 year lease; all the way to a 90 year extension in addition to your unexpired term (i.e. if you had 70 years remaining on your lease you would receive a 160 year lease).
‣ The landlord may however seek to retain some ground rent, and therefore they may ask you to pay a sum of £250 – £350 per annum, to increase periodically. The periodic increase could be anywhere between every 10 to 25 years, and could be based on a retail price index increase (more common where the increase is every 10 to 15 years), or may increase by a fixed increment or double (more common where the increase is every 20 to 25 years).
The landlord may also attempt to change some of the other terms of your lease to bring the lease up to date, or indeed to enable them to incur other charges at your cost.
‣ As this type of lease extension process is informal, whilst you do not have to agree to the offer being advanced by the landlord, ultimately, the landlord does have the upper hand, and they are able to take the step of imposing in some circumstances unreasonable requests. If you do not accept the requests, then there is a possibility that the landlord will refuse to grant the lease. In our experience however landlords are generally quite amenable to lease extensions on an informal basis and it is uncommon for an unreasonable request to be advanced.
‣ In the event that you have a mortgage on your property, in the course of an informal process, you will be required to seek the consent of your mortgage company to the extension of your lease. This is a simple procedure which we will attend to for you, but can delay progress, as your lender can take up to 8 weeks to process that consent.
If matters cannot be agreed informally, then it is necessary for a formal process to be undertaken under the Leasehold Reform Housing & Urban Development Act 1993.
‣ By virtue of this process you will start the process by obtaining your own valuation, and then serve an Initial Notice on your landlord. Once this has been served, your landlord has a period of 2 months during which to respond to the notice. They are able to request that you pay a deposit equal to 10% of the value detailed within your notice (and therefore if you quote a premium of £10,000, you will pay £1,000 in relation to the deposit); and this must be paid within 14 days of a request.
‣ Once the landlord has served a Counter Notice, there will invariably be some dispute in relation to premium.
The parties will therefore enter into discussions regarding premium, hopefully with a view to agreeing the premium to be paid. Those negotiations are primarily undertaken by your instructed surveyor, and the surveyor instructed by the landlord.
‣ The solicitors will at like time begin discussions and negotiations in relation to the content of the new lease.
‣ If terms are agreed, then matters can proceed to the final stage of the transaction; but if they cannot then matters are referred to a First-Tier Tribunal. You must refer matters to a First Tier Tribunal within 6 months of receipt of the counter notice, as otherwise this deems your notice as withdrawn and you are required to restart the process. If terms are agreed however, this is considered to be compliant with the six-month time limit and a new time limit begins. We will attend to this below.
‣ If you are required to refer matters to the Tribunal, the Tribunal is able to consider the premium to be paid, the content of any new lease, and the cost that you pay to the landlord. You are required under the Act to pay all costs associated with the lease extension process incurred by the landlord, save for those costs incurred in relation to any negotiation, and any costs incurred in Tribunal proceedings. Most of the costs incurred by the freeholder therefore will be recoverable from you.
‣ The process with the Tribunal takes approximately 3 to 5 months, and will start with the Tribunal sending out Directions in the first instance, which require the parties to make representations in relation to any draft lease, and to submit valuation evidence in relation to premium. A hearing will then be listed wherein the Tribunal will attend a site visit of the property to consider their own representations in relation to valuation; and they will then hear representations from the parties’ surveyors and legal representatives, concerning both the premiums to be paid and the draft documentation. If costs are in dispute, representations will also be made by the legal representatives, in relation to costs. The Tribunal will then provide a determination, usually on paper, within 3 to 4 weeks of the hearing date.
‣ Once terms have been agreed, or a Tribunal has made a determination, you then have a period of 2 months to enter into a contract for the completion of the lease extension.
‣ If a contract is not entered into within 2 months, you then a further period of 2 months within which to make an application to the Court to force the other party to enter into that contract. If you do not make an application within this time, then again your notice is considered to be withdrawn and you will need to restart the process.
‣ Upon completion you will pay not only the premium, that any remaining costs due to your own Solicitor, the landlord’s solicitors and surveyors fees, and any apportionments of ground rent that may be due. This applies regardless of whether or not the matter is concluded by way of a formal process or indeed an informal process.
‣ Once completed, matters registered at HM Land Registry, for the purpose of ensuring that your title reflects the extended lease. Regrettably however, timescales for this process are approximately 6 to 9 months at present, and therefore if there is a requirement for the property to be sold or re-mortgaged following the lease extension, it may be necessary for an application to be made to them Land Registry for expedition of your application to ensure that this delay does not cause you any difficulty.
If you have any further queries in relation to the lease extension process, then please can you contact either Lorraine Lancaster or Lucy Grunwell by phone on 01702 662963 / 020 35537115/ 01277 889193 / 01268 855679 or via email at [email protected]
This article does not necessarily deal with every important topic or cover every aspect of the topics with which it deals. It is not designed to provide legal or other advice. If you require specialist advice on this topic, please contact us to discuss how we may assist you.