Extending your Lease

Extending your Lease

Owning the leasehold of a property means that you own it for a specified number of years. As the years remaining on the lease reduce, the value of the Leasehold property goes down, and therefore, a lease can often be described as a depreciating asset. This is because you wouldn’t pay the same for a house for 5 years as you would for 99. This leaves no other option than extending your lease.

Under the Leasehold Reform, Housing and Urban Development Act 1993 (“the Act”) leaseholders have the right to statutory lease extension, whether the landlord wants to or not. This means that a leaseholder can extend their lease term by a further 90 years.  They can also bring the obligation to pay ground rent to an end by making it just a peppercorn.  Whilst this won’t be given to you for free, the Freeholder can ask for a premium in exchange for the extension, it has to be based on what the value of the extension is really worth.

As the lease gets shorter, the value of the extension will increase, so if you are going to do this, the sooner you start the process the better.   We can help you with this process, and here are some guidelines so you know what to look for:

Find out exactly how many years remain on the Term of the lease

If the lease has over 80 years left to run, then there is no “marriage value”, This is essentially the increase in property value you would likely archive due to the increased term of lease.

That might make you think that you don’t need to rush to get the extension done, as there are still plenty of years left to run.  However, just because you have a lease term over 80 years, you should not become complacent, the value is still depreciating, and whether you are going to stay for the rest of your life, or sell in a few years, the length of the lease is still going to be relevant.  Instead of forgetting about the issue just because it is not crucial to address it immediately, get a valuation on extending your lease as early as possible.

Speak to a Leasehold Enfranchisement Specialist Surveyor and Conveyancer

Before contacting your landlord, it is best to instruct a lease extension specialist solicitor and a surveyor who specialises in lease extensions.

The solicitor can check your lease and make sure you qualify for the rights under the Act before you spend any more money on the surveyor and taking the time to negotiate with your landlord.

Assuming your solicitor says that your lease can be extended, the surveyor will be able to give you an idea of how much you could expect to pay to extend your lease, which can help you to know where to start when negotiating with your landlord and making sure you can raise the money to pay.

Starting the process

To start your claim, the solicitor should then prepare the section 42 Notice. You should send them your most recent ground rent and service charge demands, details of the managing agent if you have one, and the Freeholder’s address for service if possible. This will help them to complete the notice.

A lower amount than you actually expect to pay should be put on the section 42 Notice so that you can negotiate. However, the Act states that this figure must be realistic. It is hard to define what will be realistic, however your surveyor will be able to give you guidance on this.

Once a valid section 42 Notice has been served, a strict timetable commences.

The Landlord

In most cases, once the notice is served, the landlord requests payment of the statutory deposit. This will be the greater of 10% of the premium quoted in your initial notice or £250, whichever is the higher. After receiving this request for the statutory deposit, your solicitor only has 14 days to make the payment, and so you should think about paying into your solicitor’s client account prior to service of the Notice, or at least make sure you have the money ready and set aside. The deposit will be paid to the Freeholder’s solicitor to hold as stakeholder, and this amount will be offset on completion.

The landlord’s surveyor will probably also require access to inspect the property so that they can complete their own valuation report. If you rent out the property, be sure to discuss this with your tenant early on and advise them that you will need them to grant access should the head landlord ask.

Interim works

Many Leaseholders are concerned about if they should postpone any planned works to their property until after the Freeholder’s surveyor has inspected, as they assume the value will go up if they complete improvements. However, when valuing a property for a lease extension, the surveyor will assume that both the Leaseholder and Freeholder have complied with their respective obligations in the lease, including internal and external maintenance, and disregard any improvements. This means that they assume that the property is in “lease-maintained condition”. It also means that the surveyor’s inspection will be a lot quicker than you expect, so don’t be alarmed when the valuation takes 10-15 minutes rather an hour!  It’s not the same as the type of survey you’d have done if you were buying the property.

Next Steps

You should receive a Counter Notice from the landlord within two months of the date you served the section 42 Notice. If the landlord fails to serve a Counter Notice, they will not be able to negotiate with you, and the extension will be granted on the terms set out in your notice.

As well as the formal Counter Notice, your landlord may also offer an informal deal. You will need to consider this carefully, but sometimes it may be the better option, depending on your circumstances and what the offer is. You should always take advice from a specialist before accepting any offers or making any decisions.

When you receive the Counter Notice, your surveyor can start the negotiations with your landlord’s surveyor. Negotiations will take place over two months.

Application to the Tribunal

Once the negotiation period is over, your solicitor will look at what progress has been made between the surveyors.  If negotiations are not going well, they can make an application to the First-tier Tribunal (Property Chamber). If the surveyors are making progress, usually the parties will allow them more time so that they can negotiate further and hopefully make an agreement. However, an application to the Tribunal must be made at least two months from the date of the service of the Counter Notice, but not more than six months or the Notice will be considered withdrawn. This means that you have four months to make an application to the Tribunal.

Completion Date

Once either a deal is done, or an order made by the Lands Tribunal, your solicitor can proceed to extend the lease. As with a conventional property transaction, a completion date will be set and completion take place. On completion, your conveyancer would apply to the Land Registry to have the title to the property amended.

This final steps concludes your lease extension.

Disclaimer – our articles are designed to give you guidance and information.  There is no substitute for proper direct advice, particularly as everyone’s circumstances are different.  If anything in this article may affect you, please contact us for advice that is specific to your circumstances.


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