Extending Your Lease

Eligibility Criteria
In order to apply for a statutory lease extension, in the case of most leases, the only requirement to be fulfilled is that you have owned the property for a period of 2 years.

What you will achieve
Once the statutory process is completed you will have:-

• 90 additional years added on to the current un-expired term of your lease.
• A peppercorn ground rent.

It is important to note that these are the only 2 amendments to the lease that you would be entitled to under the statutory regime. Therefore if you are aware of other defects in your lease that might affect you being able to market your property these will not automatically be rectified although it may be possible to negotiate other amendments at the same time as your statutory lease extension the freeholder may charge you more money for it.

Procedure

• A Notice of Claim is served on the freeholder and any intermediate landlord
  The Notice informs the freeholder of your intention to compulsorily purchase a lease extension and it makes an offer as to the price you are willing to pay. It also specifies a date by which the freeholder should respond.
• The freeholder is then entitled to serve a Notice asking you to prove that you have owned your property for the minimum 2 year period.
• The freeholder is entitled to instruct a valuer to inspect your flat in order to calculate the value of the lease extension in the same way that your valuer did this for you.
• The freeholder is also entitled to serve a Notice requesting that a deposit of 10% of your offer figure is paid to him within a required period of time.
• The freeholder then serves his Notice in Reply which has to be by the date that has been specified in your Notice but the legislation states that this date has to be at least a period of 2 months from when you served your Notice.
  The Notice in Reply will either admit or deny your right to purchase a lease extension. If the Notice admits your right which is usually the case, the freeholder will either accept the offer you made in your Notice or alternatively will counter propose a different price. Generally the freeholder counter-proposes a different price. The reason for this is that your offer figure is generally lower than the figure you expect to pay and the freeholder counter proposes a figure that is higher than the figure he expects to obtain.
• After the Notice in Reply has been received the legislation provides for a period of time for negotiation.
  Your valuer and the freeholder's valuer will get together and seek to agree a premium.
  Negotiations are usually a minimum of 2 months although can extend to a period of 6 months after the Notice in Reply has been received.
• If the premium payable is agreed during this period of time then the wording of either the new lease or the Deed of Variation will be agreed between yours and the freeholder's solicitor and registered at the Land Registry.
• If the premium cannot be agreed during this period of time then sometimes it may be necessary to make an application to the Leasehold Valuation Tribunal to make the decision for you. The Leasehold Valuation Tribunal are an expert body specialising in this and other matters.
  If you did not make your application to the Leasehold Valuation Tribunal before the expiry of the 6 month period after the Notice in Reply then the Notice you served would be considered withdrawn and you would have to start the process afresh. This would of course have cost implications on you.
• About 98% of lease extension cases settle by negotiation.

Buying or selling a flat with a short lease
You may wish to sell your flat knowing it has a short lease which may make it more difficult to sell than a flat with a longer lease. A lease extension might make your flat more marketable but you may not want to wait the minimum 6 month period a statutory lease extension would take to complete.

You may wish to buy a property with a short lease but be advised not to do so or are reluctant to do so in light of the fact that you will not be able to extend your lease until you have owned the property for a period of 2 years at which time the premium payable to the freeholder will have increased.

Both these problems can be overcome.

• An eligible seller can serve a Notice on the freeholder in his name.
  The Sale Contract will have a clause incorporated into it to cover the lease extension process.
  The clause will deal with who will serve the Notice and when and who will pay the costs.
• When the sale of the property completes the seller's rights in the Notice that has been served will be assigned to the new buyer at the same time as the assignment of the lease itself.
  The ability to deal with matters in this way is helpful to a seller in a property market where buyers are looking for long leases and additionally where a party wants to buy a property with a short lease but doesn't want to wait the 2 year period before extending it.

Executors
If you are the executor of an estate then you have the right to apply for a statutory lease extension as long as it is done within 2 years from the date of the Grant of Probate.

This can be a useful tool for an executor who is under a duty to maximise the value of the estate he is administering. An executor can undertake the lease extension process which generally one would expect to increase the value of the flat and as a result benefit the estate that is being administered.

Intro. Leasehold property

1. Purchasing the freehold

2. What will it cost?