Lease extensions
Articles:
A lease extension is available to all long leaseholders who have held their lease for at least two years. The terms of your lease will largely remain the same except you can add 90 years to the time left on your old lease and you will no longer be expected to pay ground rent.
Do you qualify for a new lease?
You will not have the right to a new lease if:
- You have held your lease for less than two years.
- Your landlord is a charitable housing trust and the flat is provided by the charity as part of its charitable work.
- You have a business lease.
- Your building is within the precinct boundary of a cathedral.
- Your building is built on certain land held by the National Trust; or
- Your building is owned by the Crown. However you may find that the crown authorities will agree to let you buy your lease.
- You have a shared ownership lease where the total share owned is less than 100%.
The lease extension process and the service we can provide
- Entering a notice on the freehold title register at H M Land Registry to protect your right to extend your lease.
- Determining your right to qualify for a new lease.
- Preparing notice to freeholder for a new extended lease to include checking your lease and providing evidence of title in accordance with the regulations.
- Service of notice on the freeholder.
- Respond to freeholder’s request to substantiate claim.
- Respond to service of freeholder’s counter notice.
- Deal with the freeholder and/or their solicitor.
- Approve the new lease prepared by the landlord’s solicitor and report to you on its terms.
- Deal with the freeholder and/or their solicitor.
- Complete the execution of the deed of variation by arranging for the payment of the premium and collection and exchange of documents.
- Register transaction at the Land Registry who will open new title on submission of deed of variation.
- Complete transaction by reporting to you and returning deeds to your lender where applicable.
- Where the landlord has a loan secured on the freehold, obtain the lender’s consent to a new lease.
- Act as your tax agent to complete and submit your Stamp Duty Land Transaction Return to the Revenue.
Extending your lease-the traps for the unwary!
Trap 1 - failure by the tenant to complete the new lease within 4 months of reaching an agreement after service of a notice and counter notice
If the terms are agreed and no binding contract has been entered in to by both parties, the lessee has 4 months from the date the terms were agreed to apply to the county court for a vesting order if the landlord delays completing on the agreed terms. If the landlord fails to complete on the agreed terms within 4 months from the date all the terms are agreed the lessee’s notice is deemed to be withdrawn, unless an application for a vesting order is made prior to the 4 months period.
Trap 2 - failure by the landlord to serve a valid counter notice within 2 months
Whilst the lessee can serve another notice if the first is invalid, the landlord does not have this protection so it is crucial that the counter notice is valid. Where the counter notice is invalid a lessee has a right to apply to the county court for a new lease extension on the terms set out in his section 42 notice or where an application to acquire the freehold was initiated by a section 13 notice apply to the court for an order determining the terms on which it is to acquire the freehold in accordance with the proposals contained in the initial notice. Following the case of Willingale v Globalgrange Limited the Court of Appeal has found that where a lessee can establish their statutory right be it for a lease extension or to collectively enfranchise the court must make an order in favour of the leaseholder. The effect of serving an invalid counter notice has serious consequences for the landlord, however the lessee must respond as the law provides if they want to take advantage of the position.
Trap 3 - failure by the tenant to apply to the Lease Valuation Tribunal to determine the terms of the new lease within six months of the counter notice
Where a counter notice is served by the landlord admitting the tenant’s right to a new lease but disputing the terms, the tenant must apply to the Lease Valuation Tribunal to determine the terms of the new lease within six months of receipt of the counter notice. Failure to make an application will result in the tenant’s notice of claim being deemed as withdrawn. The consequence of deemed withdrawal for a lessee is that not only will he be responsible for his own legal and third party costs but also the reasonable legal and third party costs of the landlord and will have to wait 12 months before he can start the process again.
Trap 4 - failure by the tenant to apply to the court for a vesting order
Where no counter notice is served by the landlord or he serves an invalid notice, an application to the court must be made by the lessee no later than six months after the date by which the counter notice should have been served. Failing which the lessee’s notice is deemed to be withdrawn, unless the parties agree the terms and complete the transaction without having to go to court.
Options for leasehold extension or collective enfranchisement of property
Case study
I am buying a flat on the ground floor of a period conversion property. There is a flat upstairs that is also being sold. The lease on my flat has 80 years to run. I am concerned that when I come to sell the flat, I will have difficulty in doing so as the lease may be on the short side.
I would like to make an alteration to the flat – build a conservatory. To do this I need either the permission of the freeholder or to own the freehold.
7 Options
1. Negotiate a voluntary purchase of the freehold with the landlord.
2. Negotiate a voluntary leasehold extension with the landlord.
3. Serve notice to buy freehold.
4. Serve notice to extend leasehold.
5. Ask vendor to serve notice to extend lease and transfer into my name.
6. Ask vendor to jointly (with owner of upstairs) serve notice to buy the freehold.
7. Do not extend lease or buy freehold.
Option 1 - Negotiate a voluntary purchase of the freehold with the landlord.
Plus
- It does not matter whether the flat downstairs is interested or not in buying the freehold. The freeholder must offer it to both of you. If they refuse, I could buy the freehold of the whole building.
- Low costs.
Minus
- So far the landlord has not responded to my enquiries and so appears reluctant to sell.
- Landlord can set price of purchase.
- Cost to set up a management company.
Option 2 - Negotiate a voluntary leasehold extension with the landlord.
Plus
- Longer lease, so no problem with selling flat on.
- Stay on good terms with freeholder so may grant permission to install conservatory.
Minus
- So far the landlord has not responded to my enquiries so appears reluctant to extend the lease.
- Landlord can set price of lease extension.
Option 3 - Serve notice to buy freehold.
Plus
- Would own freehold so could reissue leases, put in conservatory and find own building insurance.
Minus
- Is the flat above interested? If they are not, then cannot serve a notice alone.
- Costs – your solicitor, negotiator and valuer and landlord’s solicitor and valuer. Possible costs of LVT (Leasehold Valuation Tribunal.)
- Could be long drawn out process – waiting list up to 2 years if it goes to LVT.
- Cost to set up management company.
Option 4 – Serve notice to extend leasehold
Plus
- Would have longer lease, so easier to sell.
Minus
- Relationship with landlord would deteriorate and he may be unlikely to grant permission to install conservatory.
- Costs – your solicitor, negotiator and valuer and landlord’s solicitor and valuer. Possible costs of LVT (Leasehold, valuation tribunal.)
- Need residence of min. 2 years before can apply.
- Process would take up to 1 year should it go to LVT.
- By the time I come to do this, the lease may be below 80 years and therefore ‘marriage value’ would need to be taken into account. This may cost significantly more than if renewed the lease now.
Option 5 – Ask vendor to serve notice to extend lease and transfer into your name.
Plus
- Timescale brought forward so do not need to wait 2 years to pass the residence test.
- Easier to buy freehold with longer lease.
Minus
- Relationship with landlord would deteriorate and he may be unlikely to grant permission to install bathroom.
- Costs – your solicitor, negotiator and valuer and landlord’s solicitor and valuer. Possible costs of LVT (Leasehold Valuation Tribunal.)
- If decide to go ahead and get collective enfranchisement in approx. 1 year, will need to pay costs (solicitor, valuer, and LVT) again.
- Seller may not want to be bothered with this.
Option 6 – Ask seller to jointly (with owner of upstairs flat) to serve notice to buy the freehold. This would be transferred to you and the owner of the upstairs flat.
Plus
- Can buy the freehold faster. Will then be in position to install conservatory and choose own insurance company.
Minus
- Seller may not want to bother with this.
- Owner of upstairs flat may not want to buy the freehold and may withdraw notice. Shall need to wait for period of time before can apply again.
- Costs – your solicitor, negotiator and valuer and landlord’s solicitor and valuer. Possible costs of LVT (Leasehold, valuation tribunal)
Option 7 – Do not extend lease or buy freehold. When you come to sell the flat, serve notice on freeholder for lease extension or negotiate voluntarily, so that buyers know that there will be a long lease.
Plus
- No costs.
- No hassle.
Minus
- Will you be able to sell the flat for a good price?