Your rights to extend your lease are contained within the Leasehold Reform Housing & Urban Development Act 1993 as amended by the Commonhold and Leasehold Reformed Act 2002 (‘2002 Act’).
Provided you have owned your flat or maisonette for more than two years, you are entitled to a 90-year extension to your current lease.
In addition, the ground rent will become peppercorn (£1 per annum if demanded) for the duration of the new term.
These rights are obtained automatically once you have owned the property for more than two years (the two year period commences from the date the transaction is registered with Land Registry).
However, if you are currently purchasing a property, as long as the vendor has owned the flat for more than two years, these rights can be assigned to you on completion (as long as they have started the procedure) so you would not have to wait two years.
The freeholder has limited grounds to refuse the granting of a lease extension. Such grounds are follows;
The property forms part of the Royal Estate
The property forms part of a working railway line
Where the lease has less than seven years left to run
In instances where the freehold is owned by the Crown Estate, different rules apply although the main valuation principles are the same.
Once you have decided to look into the process of extending your lease, it is always advisable to obtain in independent valuation form a chartered surveyor as to the likely premium payable.
Please note you will also be liable for the freeholders reasonable costs too.
The conclusion should contain a figure which can be included within the initial Notice (see below).
Please also note that the figure must be realistic in that if it is too low, it may invalidate the notice and so a fresh notice will need to be served and you could be liable for the freeholders costs in dealing with the Notice.
The Initial Notice
Once the valuation has been received and you have decided a figure to be offered to the freeholder, your solicitor will serve a notice under Section 42 of the Leasehold Reform Housing & Urban Development Act 1993 containing an offer to purchase a lease extension.
The Notice itself must contain the following information;
The full name(s) of the leaseholders and the address of the property.
The lease particulars.
Confirmation that they have owned the flat for more than two years
The proposed premium any terms of the lease that they wish to change.
The name and address of the landlord.
A date by which the landlord must respond to this Counter Notice which must be not less than two months from the date of the tenant’s Notice (It also has to allow for postage so it usually should be seven days plus that date but can be longer)
There is no longer a requirement for the leaseholder’s to sign the Notice as it can be signed by your solicitor.
Once received, the landlord can request a 10% deposit (or up to £250) which is held by the landlord’s solicitor as a deposit which is credited against the funds required for completion.
The landlord’s has up to two months in which to respond by serving a counter-notice.
During this period, they are entitled to have their own valuation (which you will be liable for) and make any necessary enquiries to confirm that the leaseholder qualifies under the Act.
The Landlords Counter-Notice;
The landlord must serve his Counter-Notice by the date specified in the leaseholder's Notice confirming the following.
Agree your right to the new lease and accept your terms (or propose alternative terms), or
not admit your right and give reasons, which may need to be determined by the county court, or
Refuse the lease extension on the grounds that the premises are required for redevelopment; the landlord can refuse to grant the new lease if he can prove to a court’s satisfaction that he intends to demolish and redevelop the building. This only applies to applications where the remaining period of the lease is less than five years from the date when the notice was served.
If the freeholder does not accept the premium or any other aspects of the conveyance (such as terms of the new lease or costs), there is a statutory period for negotiation of at least two months but not more than six.
At this stage, we will attempt to agree a premium with the other side’s surveyor. In the vast majority of cases however the premium is agreed by negotiation.
If matters cannot be agreed, your solicitor will need to make an application to the First-tier Tribunal (Property Chamber) for an independent and binding determination on any unresolved issues.
These can include;
The premium for the lease extension.
The costs claimed by the Landlord including reasonable solicitors and professional fees.
The terms of the new lease.
Where either party has acted unreasonably during the proceedings, they can apply for compensation under Commonhold and leasehold Reform Act, 2002 - Schedule 12 (10) (3) although it is rarely necessary.
Once an application is made, the First-Tier Tribunal (FTT) will issue directions, which include a timetable for when a draft lease must be submitted to the tenant’s solicitors and an exchange of valuations between the surveyors.
Once valuations have been exchanged, we will be able to advise you on the main areas of disagreement and whether it would be more sensible to try to reach agreement by negotiations or whether it would be advisable to seek a determination from the First-Tier Tribunal (FTT).
In cases where we believe it would be in your best interests to obtain a determination of the First-Tier Tribunal (FTT), we will need to prepare submissions, which include an Expert report from us and a Statement of Agreed Facts and Matters in Dispute.
We will then attend the hearing on your behalf, stating our case by providing evidence and other relevant documentation to support our case.
We have attended many such hearings over the last few years and have considerable expertise in this regard.
The Tribunal issue their decision, normally within four to six weeks, with a commentary on the hearing and how it came to its decision.
The decision is binding with extremely limited rights of appeal.
Any appeal must be made within 21 days of the decision being published and can only be made with the permission of the Tribunal.
The only grounds for an appeal is on a point of law or if the Tribunal have made any mathematical errors.
Once the decision is issued and the parties have not appealed against the decision, the parties have two months in which to complete the matter.
If this period elapses without completion of the new lease, then the leaseholder must apply to Court within a further two months requiring the Landlord to meet his obligations.
The Court can then force the freeholder or leaseholder to complete or it will complete the transaction on their behalf. Any costs incurred as a result of this can be claimed.
If there is no application for a Court order and the matter still has not completed, the leaseholder is deemed to have “withdrawn” the Notice and the landlord is no longer obliged to complete and can claim costs.
Furthermore, you will not be able to formally apply for another lease extension for one year from this date.
The above information is meant as a general guide only. Should you require any further information or advice, please contact Andrew Cohen, MRICS, via email at email@example.com or call 07717228625.