Lease Extensions: Extending A Leasehold

It is common for homes that share a building with other residences (mainly flats) to be purchased on a leasehold basis. There are several reasons why a tenant may wish to extend a lease, namely that the lease terms are becoming short. Properties with shorter leaseholds may be worth less and be harder to sell. But, you have a legal right to extend your lease. Here is a guide to the main ways of extending the term of a lease and the legal costs involved. There are three main points to address, which are as follows:

1: FORMAL ROUTE LEASE EXTENSIONS (OTHERWISE KNOWN AS THE STATUTORY ROUTE).

• The tenant serves notice on the landlord to extend the lease.
• To have the right to serve the notice, the tenant must have owned the flat for two years.
• The landlord must extend the lease if eligibility is established and the notice is valid.
• The term will be extended by another 90 years, and the ground rent will fall to a peppercorn. For example, a 99 years lease from 1 January 1990 becomes a 189-year lease from 1 January 1990.
• The tenant will pay the landlord a premium representing the value of an extra 90 years to the term and a nil ground rent.
• There are stringent time limits that must be observed.
• The tenant is responsible for the landlord’s costs.
• The landlord cannot impose other variations to the lease (although the landlord is allowed to rectify errors).

Stage one

• Checking eligibility and making investigations of tenant and landlord’s title.
• Serving s42 Notice* on the landlord.

*The notice must include a provisional premium.

The advice of a surveyor should be taken before a provisional premium is offered.

Stage two

• The landlord makes a counter offer.
• The landlord’s counter offer will state whether the landlord accepts the tenant’s claim for a lease extension.
• If the landlord accepts the tenant’s claim, the landlord’s counter offer will state the premium the landlord requires to extend the lease.

Stage three

• The landlord and the tenant, usually through their surveyors, agree on a fair premium.
• The advice of a surveyor should be taken before a premium is agreed upon.
• If a fair premium can’t be agreed the courts can impose a premium and other terms.

Stage four (where a fair premium has been agreed).

• The terms of the new deed stating the new term and rent will be agreed upon by the tenant’s solicitors and the landlord’s solicitors.
• The consent of the tenant’s lender will be obtained if necessary.
• The lease extension will be completed and registered at the land registry.

2: INFORMAL ROUTE LEASE EXTENSIONS (OTHERWISE KNOWN AS THE NON-STATUTORY ROUTE).

• No notice is served.
• Landlord and tenants reach an agreement between themselves or via surveyors.
• The term can be longer or shorter than 90 years.
• The ground rent can increase*.
• The lease can be varied in other ways.
• There are no time limits to be observed on these lease extensions.
• The landlord is likely to expect the tenant to be responsible for the landlord’s costs.

*subject to pending government legislation.

Stage One

Landlord and tenants, or their surveyors, agree on terms.

The advice of a surveyor should be taken before a premium is agreed upon.

(If an agreement can’t be reached, the tenant may wish to consider the formal route).

Stage Two

• The terms of the new deed stating the new term and rent will be agreed upon by the tenant’s solicitors and the landlord’s solicitors.
• The consent of the tenant’s lender will be obtained if necessary.
• The lease extension will be completed and registered at the land registry.

3: MANAGEMENT COMPANY OR OTHER GROUP LEASE EXTENSIONS

This can occur where the tenants of a block own the freehold of the building, for example, as a management company, and wish to extend the term of each lease. In this case, the management company/ landlord will be the client.

For information on my fees, please visit my profile and fill in the form to receive your quote.

This note is not intended to substitute legal advice from your instructed lawyer. You should always consult with your lawyer directly regarding any specific queries you may have.