Lease Extensions of Flats – The Process
Qualifying tenants of residential long leases have the right to the grant of a lease extension under the Leasehold Reform, Housing and Urban Development Act 1993 (LRHUDA 1993), as amended by the Housing Act 1996 and the Commonhold and Leasehold Reform Act 2002.
The LRHUDA 1993 affords an individual qualifying tenant the right to a new lease for a term equal to the unexpired residue of the existing lease plus ninety years.
To qualify, the tenant’s lease must have been originally granted for a term of more than twenty-one years and must have been held by the tenant for at least two years prior to the service of the statutory notice which triggers the renewal process.
It is possible for a qualifying tenant who wishes to sell their leasehold interest to initiate the renewal process and assign the benefit of the renewal proceedings to the incoming tenant, allowing the new tenant to proceed with the renewal without waiting a further two years.
A lease granted under the statutory procedure will be at a peppercorn ground rent and otherwise on similar terms to the existing lease.
A premium is payable to the landlord reflecting, broadly a combination of:
- the diminution in value of the landlord’s interest in the Tenant’s flat; and
- where the unexpired term of the lease is 80 years or less, 50% of the ‘marriage value’, being the total value of the future leasehold interests less the total value of the existing interests (marriage value is not payable when the lease has more than 80 years remaining); and
- Other losses including loss of development value.
The statutory process is initiated by the tenant serving a Section 42 Notice (the ‘Initial Notice’) on the landlord, specifying the premium payable. Advice should be sought of a specialist surveyor who will calculate the premium to be included in the Initial Notice. This figure must be realistic and is usually the lowest of a range of premiums proposed by the tenant’s surveyor, to allow scope for negotiation.
The landlord will be likely to require payment of a statutory deposit on receipt of the tenant’s Notice. This will be either £250 or, if greater, 10% of the quoted premium.
The landlord will then have a period of two months to serve its Counter Notice either agreeing to the terms of the Initial Notice or proposing an alternative premium to be paid for the Lease Extension.
The parties then have a period of six months in which to negotiate an agreed premium, usually dealt with by the parties’ surveyors.
Once the parties’ surveyors have agreed the premium (or, if an application to the First-tier Tribunal (Property Chamber) (the Tribunal) proves necessary, once the Tribunal has determined the premium), the solicitors shall agree the final form of the lease and proceed to completion.
It is possible to extend the lease informally and outside of the statutory procedure by agreement with the landlord, although professional advice should be sought in this regard.
If proceeding under the LRHUDA 1993, the tenant should obtain legal advice at an early stage to ensure that the statutory procedure and strict timetable involved is adhered to, given the serious consequences of not following the procedure correctly.
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