LEASE EXTENSION

General Information

We are constantly asked what length of lease is considered "acceptable" & regularly about levels of ground rent. In our professional opinion;

Over 80 years – taking action before the lease gets down to 80 years will avoid marriage value, whereby the freeholder is entitled to significantly more premium. However, if you are selling a property you could find that any Buyer could be put off where the lease is even within the mid - late 80 year range as when they come to sell they may have to extend the lease to do so & if the lease is at say 81 years, then as the owner has to have been the register proprietor for at least two years to qualify for the lease extension they would not qualify until after the lease had dropped to below the 80 year threshold.

Below 80 years – it is very important to take action as quickly as possible as the cost of rectifying the problem is increasing rapidly.

Under 70 years – most mortgage lenders will not lend against flats with leases below this level or will offer much less favourable terms, making the flat potentially unsaleable to most buyers.

The Leasehold Reform Housing and Urban Development Act 1993 (as amended) is legislation which provides an opportunity for an additional term of 90 years, at a peppercorn rent which is basically the same as being rent free. Note - the additional 90 years is plus the present unexpired term.

A number of landlords try to either ignore a direct request (we presume that as the lease is continually decreasing in length, the cost of the extension is potentially increasing) or offer shorter extensions & increase the ground rent from the amount presently payable in the process. In addition it is not uncommon for some Landlords to require money ‘up front’ for a ‘valuation’ which, in my personal opinion is not generally recommended. We regularly h from clients who have paid a Landlord or their agent for a so called ‘valuation’ only to find that they do not get a copy of the valuation itself and or the ter of the new lease are for a shorter time than the entitlement, often with an increased ground rent payable which would not be in accordance with the legislation!

Often people do not appreciate quite how much a Landlord will receive where a ground rent is still payable. As an example, say you have a lease with 70 years remaining & the Landlord agreed to an extension so the lease was in total 99 years but included a ground rent of say £350 per annum, doubling every 10 years. This would relate to a staggering Three Million Four Hundred Thousand pounds approximately over the term in ground rent alone !! Furthermore, you would only be getting a 29 year extension when you could be entitled to a 160 year lease & not pay any ground rent.

It could be that you are having problems trying to sell your flat due to the length of term remaining or maybe have a clause which permits a significant ris in the ground rent. This could be based as a percentage of the value of the property which could make the Ground Rent rise to hundreds of pounds in it significantly effecting the value / saleability of your property.

Even if you are buying a flat with a short lease it may be possible for the current owner (assuming they meet the qualification requirements) to serve & register the Initial Notice & then transfer this right to you so that you do not then have to wait the two year period before you can apply for an extension. Therefore there really can be a vast difference between in a 90 year extension in addition to the remaining unexpired term at a nil ground rent, but a Landlord is only obliged to grant this where a formal Notice is served upon him & not simply by an informal request.

You cannot extend your lease if:-

The landlord is a charitable housing trust and the flat is provided as part of the charity's functions

The building in which your flat is located is within a cathedral precinct, or if it is owned by The National Trust.

Crown properties are also excluded; although the Crown is not bound by the legislation the Minister has stated to the House of Commons that the Crown will be prepared to comply with the principles of  it.

Qualification Requirements & Eligibility

To be a Qualifying leaseholder you must own a ‘long lease’, and have been the registered owner at the Land Registry for at least the past two years and not be a business or commercial tenant.  You not need to have lived in the property for this period, merely owned the lease for two years or more. A ‘long lease’, by definition, is:

A lease of a term of years absolute in excess of 21 years when originally granted – The present unexpired term is not relevant; A shorter lease which contains a clause providing a right of perpetual renewal;

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A lease terminable on death or marriage or an unknown date (including the so-called "Prince of Wales" clauses);

A leaseholder having held over at the expiry of a long lease, and the landlord has not served a notice terminating the tenancy; A shared ownership lease where the leaseholders' share is 100%

Once the Tenant's Initial Notice has been served it may be assigned with the lease when the flat is sold. This way the present owner (leaseholder), assuming they meet the qualification requirements etc. can serve the notice and then sell the flat with the benefits thereof. The purchaser will be able to proceed with the application immediately, without having to meet the two years ownership qualification. This can be of assistance especially where a purchaser does not want to wait for them to become 'qualifying' and / or where a present short term of lease presents mortgage difficulties

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Important Further Information

Subject of course to the qualification requirements being met, Leases can be extended on an individual basis & therefore there is no need or requirement for others in the block to extend their lease at the same time. We have come across a number of Landlords who when approached try to argue that ever flat must extend at the same time but this is not the case. We would also point out that in some cases there is what is known as a 'Head' or 'Intermediate Lessee' as well as the Freeholder. In such cases it is not uncommon for the Head Lessee to have a lease of only a few days longer than the actual leas on the property & a number of flat owners therefore think they cannot obtain an extension. This is incorrect & where the qualification requirements are m the Lease can still be extended by an additional 90 years as in such circumstances it will be the Freeholder & not the Head Lessee who grants the extension.

Although it is not a legal requirement, we would recommend a Valuer who can provide their professional opinion as to the reasonable premium for the n lease. This is part of the service we can provide & although you will require a solicitor to deal with the basic conveyance of the new Lease, most other services we provide for you.

You should bear in mind that;

You will be liable for the ‘reasonable’ costs of the Landlord relative to the Notice of Claim / process even if you withdraw or the Notice is deemed to have been withdrawn

You may be required to pay a deposit of 10% of the proposed purchase price or £250; whichever is the greater, immediately following the service of the Notice of Claim & where a Notice is served with a completely unrealistic figure the Landlord can apply to the Court to have the Notice struck out. If such application were to be made & be successful the lessee would, no doubt, be liable for a considerable amount of costs & could not re-apply for another 1 months by which time the lease would be that much shorter, the relativity rate presumably lower & hence the premium higher.

You should have your finances in place relative to all the various costs that you will incur which would include the eventual premium payable etc

Our Charges and Services

We do not make any charge for checking your qualification entitlement. We will carry out the required searches at the Land Registry & (where appropriate at Companies House, obtain the specialist independent Valuer's opinion as to the likely premium together with preparation & service of the Notice of Claim upon your Landlord strictly in accordance with your instructions regarding the amount proposed by way of premium & any amendments that may be required. We would provide a copy of Part 1, Chapter II of the Act itself, together with a fully detailed & descriptive manual detailing in simple easy to understand terms exactly what the process is from beginning to end. Our fees for the for an independent opinion by experienced fully qualified Valuer who specialises in dealing with Leasehold Reform, together with preparation and service of the Initial Notice Of Claim are fixed so you know exactly where you stand from the outset. We do not charge an 'hourly rate' & all fees are clearly specified in writing, are entirely 'fixed' with no extras or additions in any way for that service. Upon instructions, we will send you a form to provide us with the basic information required. Initially, we will automatically check your entitlement / qualification strictly based on the information you have at that time supplied to us without charge. If the amount proposed in the Notice of Claim were refuted, then, upon your instructions, we may be prepared to negotiate with the Landlord and if that were to fail, make an application to The First-tier Tribunal on your behalf, although further fees would be payable. We naturally are unable to guarantee any application as neither being successful nor the amount of the eventual premium that may be determined by the Tribunal. You w be liable for the ‘reasonable’ costs of the Landlord relative to the Notice of Claim & the preparation / completion of the new lease and conveyancing charges etc.

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