Lease Extensions

 

Right Of A Tenant To Extend The Lease Of Their Flat: Procedure To Be Followed Where The Landlord Can be Located. 

The following provides you with additional information as to the stages involved if you decide to exercise your right to extend your lease.  Please note that it is only meant as a guide and does not cover every part of the process.

1. Preliminary

The tenant must be entitled to extend the lease under the Leasehold Reform Housing and Urban Development Act 1993. Certain aspects of the eligibility criteria are quite complex and have been the subject of a great deal of case law. As such, a thorough review of each case will need to be undertaken before we proceed. However, the basic criteria are as follows:

(i) The BUILDING containing the flat must not be excluded under the Act (for example, buildings that are owned by the National Trust)

(ii) The LEASE must be:
– the lease of a flat (as opposed to a house)
– originally granted for a term exceeding 21 years
– a residential lease (as opposed to a business tenancy)

(iii) The LANDLORD must not be a charitable housing trust

(iv) The TENANT must have owned the lease for at least 2 years

2. The Tenant’s Notice of Claim

After we have conducted the necessary preliminary enquiries to ensure that you are eligible to acquire the right to extend your lease, we must serve a Notice on the freehold owner.  The enforcement process is triggered when the notice is served.  The notice must be in a prescribed form and contain certain information.  We will draft and serve the notice for you and ensure that the conditions are met.

3. Registration of the notice

As soon as the notice is served, we would advise that you register the notice against the landlord’s freehold title at the Land Registry or as a land charge if the landlord’s title is unregistered.  This protects your interest because if the landlord tries to sell the freehold, the purchaser will be alerted to the fact that you have served a notice on the landlord to exercise your right to extend the lease.

4. Landlord’s Initial Response

When the landlord receives the notice, he will undertake enquiries to exercise your right to extend the lease.  As soon as the landlord receives the notice, he is entitled to the following:

4.1 within 21 days of receiving the notice of claim, the landlord may request evidence that you own the leasehold interest. If your leasehold interest is registered, this can be confirmed by sending a copy of the Official Copy of Register Entries for the title.  If the landlord requests this information, we will have 21 days to respond.

4.2 the landlord is entitled to request a deposit from you. This can be £250 or 10% of the premium proposed in the tenant’s notice, whichever is the greater. We have 21 days to pay after receiving the request.

4.3 on giving at least three days’ notice, the landlord has the right to access your flat at a reasonable time for the purposes of carrying out a valuation of his interest in the flat.

5. The Premium – Valuation

The Premium is the purchase price for the extended lease.

We are able to provide an in-house valuation, which will give you an approximate estimation of the premium. This will be the premium we propose in the notice of claim.

The landlord is likely to instruct their own valuer and their valuation may be different to yours because the valuation is calculated using a variety of complex statutory assumptions, formulas and market analyses.

If the valuations differ (which is likely), we will have to enter into negotiations with the landlord and the process of negotiation can take several months.

Briefly, the premium is made up of the following three elements:

5.1 The amount by which the open market value of the Landlord’s interest in flat  will be reduced as a result of the lease extension, which amounts to a combination of the following:

5.1.1 The value of the landlord’s right to receive ground rent under the lease for the remainder of the term (following the lease extension the ground rent will be reduced to peppercorn); and

5.1.2 The value of the landlord’s right to take possession of the flat at the end of the original term of the lease (which the landlord will no longer be in a position to do for a further 90 years).
5.2 Marriage Value: where the tenant is granted a lease extension, the value of the landlord’s interest will usually decrease and the value of the tenant’s interest will increase. The increase in the value of the tenant’s interest will often be greater than the decrease in the value of the landlord’s interest, which means that the combined value of the landlord’s interest and the tenant’s interest will be greater after the lease extension. The increase in the total value of the two interests is known as “marriage value” and the landlord is entitled to 50% of this figure. Leases with a remaining term of more than 80 years do not have to pay marriage value.

5.3 If the lease extension lowers the value of other property belonging to the landlord, the tenant has to pay compensation for this.

6. Landlord’s Counter-Notice

The landlord must serve a counter-notice by the date specified in the notice of claim, which must be no less than two months from the notice of claim.

The counter-notice must state whether or not the Landlord admits your claim and, if not, he must give his reasons for disputing it.

If the Landlord admits your claim he will either accept the price and terms proposed in the notice of claim or propose an alternative price and/or terms.

If no notice in reply is served by the landlord within the required time frame, the terms contained in your notice are deemed to have been accepted and you may apply to the County Court to enforce this right.  The application to the County Court must be within six months from the date at which the notice in reply should have been served.

7. After You Receive the Counter Notice

Scenario 1:  The Landlord Disputes Your Claim

The grounds for disputing the claim are limited. For example, the Landlord might dispute the claim if:

– the notice is invalid, because it does not contain the correct information.

– the Landlord believes that you do not satisfy the eligibility criteria.

– the Landlord wishes to substantially redevelop the premises in which the flat is contained.

If the claim is not admitted, then you must apply to the court to enforce your claim, assuming that the landlord’s basis of objection is ill founded.

Scenario 2: The Landlord admits your claim but proposes an alternative price and/or alternative terms

If the claim is admitted then the lease extension is governed by statutory conditions.

As discussed above, the Landlord may propose a different Premium based on his valuer’s advice. It will then be necessary to negotiate with the Landlord and reach a compromise.

The Act provides that you new lease will be granted on the following terms:

(i) the rent will be one peppercorn (i.e. no rent).
(ii) the term of your new lease will be the current unexpired term plus 90 years.
(iii) the other terms will be exactly the same, subject to very limited alterations; for example, modifications that might be necessary to remedy a defect in the lease or take alterations to the flat into account. This is where disputes may arise, as the definition of “defect” has been the subject of debate.

If no agreement can be reached with respect to the premium or the terms, then either party may make an application to the Leasehold Valuation Tribunal no sooner than two months after, but within six months of the date of the Counter Notice.

8. Can you withdraw?

At any time before a new lease is entered into in pursuance of the tenant’s notice of claim, you may withdraw the claim by the giving of a notice of withdrawal to every landlord and any third party to the lease.

You will be liable for any costs incurred by the landlord up to the date of the notice of withdrawal.

Once the notice has been withdrawn, no subsequent notice may be served for a period of twelve months.

9. How much will I have to pay to extend my lease?

Your decision to extend the lease may be dependent on how much it will cost.  You will be expected to pay the following:

9.1 the purchase price for the freehold (to be determined by a valuer);

9.2 the landlord’s reasonable costs whether or not the matter proceeds to completion, this includes:

9.2.1 legal fees;

9.2.2 valuation fees, but not the landlord’s negotiation costs for agreeing the purchase price; and

9.2.3 your own legal fees; and

9.2.4 your own valuation fees and negotiation fees.

The landlord’s costs payable by you must be reasonable.  In the event of a dispute the Leasehold Valuation Tribunal can determine as to whether any element of the landlord’s costs should be included and, if so, what is a reasonable amount.

We will scrutinise carefully any bill submitted by the landlord for payment by you to ensure that any costs relating to negotiations are not included.  The Leasehold Valuation Tribunal tends to take a fairly conservative approach to the assessment of costs which is of help to a tenant.

 

 

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