The residential lease extension process:
If you wish to sell a leasehold property, you may be considering whether or not to extend your lease in order to maintain the property’s value, and make it a more attractive purchase for a potential buyer.
The first step of the lease extension process would be to make contact with your Landlord informally, to ascertain whether they will grant you an extension on a voluntary basis. This procedure would avoid the costs of complying with the formal procedure. If your Landlord does agree to progress with an informal lease extension, they would take the step of obtaining their own valuation; for which you will be required to reimburse them. Additionally, you could also instruct your own surveyor to complete a valuation to ensure that the valuation is fair and consistent. Once this has been completed, your Landlord would then make you an offer for the lease extension based on the valuation(s).
If you are not in a position to seek an informal lease extension from your Landlord, you could obtain a formal lease extension under the Leasehold Reform, Housing and Urban Development Act 1993 for this process to be utilised, namely that you have held the property for at least 2 years.
If you meet this criteria the Act gives Leaseholders the right to extend their lease by a term of 90 years in addition to the unexpired term, at a peppercorn ground rental peppercorn rent means that ground rent is no longer paid). The statutory route of a lease extension is started by the service of a Tenant’s Notice on the ‘Competent Landlord’. A ‘Competent Landlord’ is a Landlord whose interest in the property is long enough to be able to grant the 90 year extension.
If you do not know who the Competent Landlord of the property is, section 41 of the 1993 Act gives the Leaseholder the right to serve information notices requesting this information from your immediate Landlord, the freeholder, or anyone else with an interest in the property.
Usually, the Competent Landlord is the Freeholder. However, we would recommend that you obtain independent legal advice as your representative would be able to undertake these investigations on your behalf to confirm this, saving you valuable time.
For the notice, it is necessary for you to instruct a surveyor to provide a valuation of the property, to ensure that you are paying a fair price for the premium, and to ensure that your notice remains valid (as too low a premium in the notice can invalidate the notice). This could inevitably save you costs further down the line.
Under section 42(3) of the 1993 Act, there are specific procedural requirements for the Notice. We would recommend that you instruct a Solicitor to draft the Tenant’s notices, as it is very important that they are drafted correctly and in a legally compliant manner. If the Tenant’s notice is incorrect, the Landlord can reject it, and this could have the effect of preventing you from serving another notice for 12 months. Furthermore, the Leaseholder is liable for the Landlord’s reasonable costs from the date they receive the notice, so rejection of the notice due to invalidity could be quite an expensive mistake for a Leaseholder to make.
Within 2 months of service of the initial notice, a landlord must serve a counter notice which will confirm whether the landlord accepts your ability to extend, and if so, as to whether they dispute your proposed terms of extension (i.e. premium). Negotiations generally occur thereafter as to premium and the drafting of the lease. If however, you cannot agree the terms of the lease extension, within the negotiation period of 6 months you can apply to the court for a determination of the terms (albeit you can only do this once 2 months have expired from service of the counter notice). It is therefore favourable if you have legal representation as they will be able to represent your interests in these negotiations, particularly in relation to a premium and keep the limitation periods in mind.
Should the matter be referred to the Tribunal, the Tribunal would determine the premium to be paid, the content of any new lease and the costs payable to the Landlord. Once terms have been agreed, or the Tribunal has made a decision, you then have a period of 2 months to enter into a contract for the completion of the lease extension. If a contract has not been entered into, you would then have a further period of 2 months within which you could make an application to the court to force the other party to enter into the contract. If you do not make an application to the Court within this time, your notice would be considered to be withdrawn and you would then need to re-start the process.
If the Landlord fails to serve a counter notice by the date stated in the tenant’s notice, you can apply to the court for a vesting order, taking the matter out of the Landlord’s hands and asking the court to grant the lease extension. This process is not considered further in this article and you should ask your Solicitor for more information on this process.
Once completion has occurred, you need to register the lease extension at HM Land Registry to ensure that your Title reflects the extended lease. If you do decide to instruct a solicitor, they will be able to make this step on your behalf. Unfortunately, the timescale for this process can take approximately 10 – 12 months. If there is a requirement for the property to be re-sold or re-mortgaged following the lease extension, an application can be made to HM Land Registry to expedite matters.
If you have any further queries in relation to the lease extension process, then please can you contact either Lorraine Lancaster or Lucy Grunwell 01702 662963 / 020 35537115/ 01277 889193 / 01268 855679
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.