Lease Extensions

A property with a lease of less than 80 years is likely to achieve a lower sale price and has the risk of becoming unmortgageable.

However, help is at hand …

Leaseholders of flats with a long lease, have a statutory right to a new lease in substitution for their existing lease, extended by 90 years, (i.e., added to the balance of the term of the original lease) with any ground rent reduced to a peppercorn. The only qualifying condition is that the leaseholder must have held the lease for 2 years or more; however, the benefit of the leaseholder’s claim under the statutory procedure can be assigned to the new owner of the flat.  (There is no residency requirement, nor does it matter how many flats the leaseholder owns in the building).

The good news for landlords is that such extended leases are subject to the payment of a premium, or purchase price.

It is possible to agree to the terms of a new lease outside of the statutory procedure.  Such an agreement does not act as a bar to any future claims for a new extended lease.

Many landlords with properties subject to long leases completed in the 1960s, 1970s and 1980s are now seeking to approach leaseholders with the incentive of a lower premium, to agree an extended lease, in order to raise additional revenue. The premium payable is calculated by a statutory formula and requires the involvement of a surveyor unless the parties have been able to reach an agreement.

It is important to note that ‘marriage value’ is payable where the lease has 80 years or less to run.  This is significant, particularly for high value flats. It is also possible to agree the revision of other leasehold terms if there is a need to modernise the wording or remove a defect.

It should be borne in mind that if a group of leaseholders are to or have commenced collective enfranchisement (i.e., the purchase of the freehold title from the landlord), then any application for a lease extension will be suspended pending the outcome of the collective enfranchisement.

But what if the landlord does not recognise a leaseholder’s right, or an agreement cannot be reached? 

If the landlord does not recognise your claim, (under the statutory procedure) the onus is on him to apply to the Court for a supportive declaration.  (The landlord must apply within two months of his service of the Counter-Notice). If the Court rejects the landlord’s claim, or he fails to make such a claim, then the leaseholder’s claim will proceed.

If the parties cannot reach agreement as to a new extended lease, then it will be necessary to follow the statutory procedure, as follows:

1.         Service of the leaseholder’s Notice of Claim, to include:

  • the suggested premium payable;
  • any other suggested amendments, or additions to the lease; and
  • give a date by which the landlord must serve its Counter-Notice, being at least two months after the date of service of the leaseholder’s Notice of Claim

Note:  The valuation date is the date of service of the leaseholder’s Notice of Claim.

2.         Service of the landlord’s Counter-Notice, to include:

  • confirmation as to whether the landlord admits or does not admit the leaseholder’s claim;
  • if admitted, state what proposals are accepted or not; and
  • as appropriate, state any counter-proposals

Note:  If the landlord fails to serve a Counter-Notice or is out of time in attempting to do so, then he loses the right to dispute the leaseholder’s proposed terms of the new extended lease. In such circumstances, the leaseholder has six months from the date when the Counter-Notice should have been served to apply to the Court for an order giving effect to the leaseholder’s proposed term.

 

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