Lease extensions and buy your freehold

 In Buying and selling property

Why do I need a lease extension?

As time passes, the term of a lease will gradually shorten. As the term of a lease diminishes so too does its value. This is of particular significance for leases with 80 years or less left to run. Under the current law, below this point the value of a lease diminishes at a greater rate.
When you own a lease with less than 80 years remaining, not only are you holding a diminishing asset, but you may also struggle to sell or remortgage your property. Many lenders will simply not offer a mortgage where the security offered is a lease of less than 80 years. We are also encountering some circumstances requiring longer terms even than 80 years.

To ensure your property optimises its value, you are able to sell or borrow money against your property, we therefore recommend considering a lease extension if you are approaching or below the 80 year mark. However, if you can extend sooner, this may well save you money In the long term.

Am I eligible for a lease extension?

If you can reach agreement directly with your landlord, you only need to own the property. However, you would also need to ensure that you reach agreement with the right person. Your property may have several tiers of ownership with intermediate management companies or other peoples’ involvement. We would strongly recommend seeking independent legal advice on any agreement you reach, to ensure the person with whom you have agreed your lease extension actually has capacity to do so.

If your landlord is reluctant to agree to a lease extension, under the current law you can prompt them to do so via the legal procedure, explained below, in the majority of cases if:

  • You have owned the property for 2 years or more (you do not need to live at the property);
  • The lease was 21 years or more when originally granted; and
  • The lease is not commercial, and your landlord is not a charitable housing trust.

If you are unsure whether you qualify, please do not hesitate to get in touch with our team. We appreciate some older leases and indeed some modern leases can be unclear, and may not expressly refer to a period of years.

How much will my lease extension cost?

Generally, the shorter the lease, the greater the sum you will expect to pay. However, the value for a lease extension is calculated via a complex set of variables, including the value of the flat itself and the amount by which the lease extension would change that value. We therefore advise instructing a qualified surveyor before commencing any formal procedures. By virtue of our practice in this area, we are able to give you suggestions of specialists, any one of whom may be suitable to advise you further.

If you agree terms with your landlord, costs are decided between the pair of you. You should always be clear when agreeing terms:

  • How much the cost of the lease extension will be and
  • Who will be responsible for the legal and any other linked costs

If you cannot agree terms with the landlord and wish to prompt them via the formal legal process, you will be responsible for the following:

  • The lease extension value itself
  • Your own legal and valuation costs
  • Legal and valuation costs of your landlord
  • Legal and valuation costs of any intermediate landlord

By how long will my lease be extended?

If you agree terms with your landlord, you can agree any extension period (and other terms if you wish).

If you prompt your landlord via the formal legal process, your lease will be extended by an automatic 90-year period (on top of the original term). Your ground rent, if any, will also be reduced to a ‘peppercorn’, effectively nothing. Your service charges will be unaffected. Other alterations are possible but generally subject to the agreement of the landlord.

Why should I instruct Rawlins Davy to help me with the process?

Particularly if you are proceeding via the formal notice procedure, we thoroughly recommend considering our services. Acting without professional advice carries risks that you may not comply with the inflexible and precise requirements at each stage of the process. Failure to do so can have serious implications both in terms of your own financial position, and the time it can take to secure the lease extension you are seeking. By a simple mistake, you can risk delays of up to a year, unexpected costs, or even being forced to take a lease extension on terms to which you have not agreed. Beyond this, by consulting our legal professionals you save yourself the stress of learning the procedure as you go along, and you can rest assured that our dedicated team will fight your corner with your best interests in mind.

Rawlins Davy has a team of solicitors able to advise on lease extensions with a combined experience of over 105 years’ practise. With our expertise, you can place your trust in Rawlins Davy guiding you safely through this process at a reasonable and transparent cost.

Formal Lease Extension Process

  1. The tenant will need to check eligibility, and whom the appropriate landlord is. We recommend seeking legal advice at an early stage on these points.
  2. The tenant will also generally want an estimate of the amount the lease extension will cost. We recommend seeking valuation advice from an appropriately qualified surveyor on calculation of a value before proceeding further
  3. The tenant will then serve a formal notice of claim on the landlord, setting out an initial offer and the terms on which the tenant seeks to extend his/her lease. This will trigger a timeframe of a 2 month minimum response period for the landlord. This notice will also trigger the tenant’s liability for the landlord’s costs.
  4. The landlord can request a 10% deposit of the figure within the initial notice at any time after the formal notice is served. The landlord may instruct a legal adviser, request proof of eligibility, and instruct their own valuer to attend the property, again with the aim of calculating the value of the lease extension.
  5. The landlord will then serve a formal counter-notice, indicating which parts of the initial notice of claim are accepted and which are not, with counter-proposals.
  6. Negotiations will often ensue on any points disputed in the counter-notice. These can continue for up to 6 months from the counter-notice. The vast majority of lease extensions are agreed within this timeframe.
  7. However, if the 6 month deadline approaches and no agreement is reached, further substantial costs can be incurred by both parties contesting a determination at the relevant independent Tribunal (a specialised Court). Generally, a Tribunal application will only be considered by the tenant where the parties are unwilling or unable to compromise on significant areas of disagreement. However, even in such situations a tenant may consider a Tribunal application as economical. If the 6 months elapses and no agreement or application is made, the original notice of claim is considered withdrawn. The tenant would then need to wait a further year before re-commencing the procedure. The value of the lease extension will be more costly, and the tenant will be responsible for the landlord’s costs in responding to both the abortive claim, and the fresh claim the following year.
  8. Provided agreement can be reached, a new lease document will then be entered into by both parties, formalising the arrangement. This needs to be registered with HM Land Registry in order for the document to have legal effect.
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