GARNER & HANCOCK LLP
EXTENDING THE LEASE
FREQUENTLY ASKED QUESTIONS
Introduction to The Property Law Service at Garner & Hancock LLP
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My lease is short. Am I entitled to a lease extension?
I do meet the requirements. How do I go about obtaining a lease extension?
I have not owned my property for two years yet. Can I still obtain a lease extension?
What do you mean by “private agreement”? How do I begin negotiations? How much is the lease extension likely to cost me?
What happens if I can’t agree a price for the lease extension with the freeholder or he
refuses to grant me a lease extension?
I want to use the Section 42 Notice procedure
What happens after my solicitor has served the Section 42 Notice?
What happens if we can’t reach an agreement?
What happens if I don’t apply to the Leasehold Valuation Tribunal?
What is the procedure once terms have been agreed?
What happens if I can’t find the freeholder or he just doesn’t respond to my Section 42 Notice?
I am buying a leasehold property with a short lease. What should I do?
Are All Leaseholders Automatically entitled to a lease extension?
Frequently Asked Questions on Lease Extensions
Answers
Q. My lease is short. Am I entitled to a lease extension?
A. Yes,
subject to various requirements and provided that you have owned the
property for at least two years. Also, the original lease must have
been a long lease e.g. granted for a term of 21 years or more. If you
are eligible, then you should be able to obtain a lease extension with
a term of an additional 90 years (to be added to the current term).
You may also be able to stop paying ground rent
.
Q. I do meet the requirements. How do I go about obtaining a lease extension?
A. There are two ways of obtaining a lease extension: either by private agreement with the freeholder or by service upon the freeholder of a Notice under Section 42 of the Leasehold Reform, Housing and Urban Development Act 1993 (known as “a Section 42 Notice”).
Q. I have not owned my property for two years yet. Can I still obtain a lease extension?
A. Possibly if the
freeholder is willing to grant an extension to you. The point is that
he does not have to do so if you are not eligible.
Q. What do you mean by “private agreement”? How do I begin negotiations?
A. You or your solicitors should contact the freeholder and request his terms for a lease extension. If the freeholder is willing to cooperate with you and grant the lease extension, he will write to you and let you know the premium (i.e the price) he wants you to pay for the lease extension, the term of the years he is willing to grant to you and the ground rent.
The
freeholder will probably require you to pay his legal and surveyor’s
costs in connection with the lease extension, which are likely to be
around £1,500.00 plus VAT but possibly more. He will appoint a
surveyor to value the lease extension i.e. to calculate the price they
should ask for the premium. You must also consider appointing your own
surveyor to value the cost of the lease extension. This is very
important so as to ensure that you are not paying too high a price for
the lease extension.
Q. How much is the lease extension likely to cost me?
A. As mentioned above, the cost of the lease extension has to be professionally valued but usually runs to several thousand pounds. You will need to instruct a surveyor and a solicitor to act for you and you will also be expected to pay the freeholders’ surveyor’s and legal costs.
You should bear in mind that each year the term of your lease grows shorter and it therefore becomes more expensive to extend the lease. This is especially the case if your lease has less than 80 years left to run. At this point, the freeholder becomes entitled to charge you an extra payment known as “marriage value”. Marriage value is the amount of the surplus value produced by taking the value of the extended lease at a peppercorn ground rent and deducting both the existing short leasehold interest held by you as the leaseholder, and the freeholder’s current interest.
Once
terms have been agreed, a completely new lease is prepared by the
solicitors, one copy is signed by you and the one copy is signed by the
freeholder. Once you have paid the lease premium and the other costs
mentioned above, your solicitor will register your new lease at the
Land Registry. Please note that if you have a mortgage, your solicitor
will need to obtain your lender’s consent. Some lenders charge a fee
for supplying this consent.
Q. What
happens if I can’t agree a price for the lease extension with the
freeholder or he refuses to grant me a lease extension?
A. If negotiations break
down and you cannot reach an agreement with the freeholder, then you
can serve upon him a Notice under Section 42 of the Act – provided that
you meet the criteria set out above!
Please
note that you do not have to begin the process by negotiating with the
freeholder. You can, if you wish, begin the process by serving a
Notice under Section 42 of the Act mentioned below but remember that in
order to be eligible to do, you must meet the criteria set out above.
Q. I want to use the Section 42 Notice procedure
A. This is relatively
simple but can be time-consuming. You will need a surveyor to value
the cost of the lease extension for you and you will also need to
appoint a solicitor to act for you. Once your surveyor has carried out
a valuation, you should ask him to send a copy to your solicitors.
They will then serve a Section 42 Notice upon the freeholder stating
the lease premium which you would be prepared to pay for the lease
extension.
Q. What happens after my solicitor has served the Section 42 Notice?
Q. What happens if we can’t reach an agreement?
A. If no agreement is
reached, then either you or the freeholder is entitled to apply to the
Leasehold Valuation Tribunal to make a decision. Up to this point, you
will probably be responsible for paying all of the freeholder’s legal
and valuation fees. However, once a Tribunal hearing has begun, each
party has to pay his own costs. It normally takes 4 to 6 months for a
Tribunal hearing to be scheduled. Each party is represented and expert
evidence can be produced.
If
negotiations do break down and you are going to apply to the Tribunal,
one of the most important points you should note is the time scale. If
the freeholder has responded by serving a Counter Notice within the
required time scale, then the leaseholder must make an application to
the Tribunal not later than 6 months from the date of the Counter Notice.
If the freeholder has failed to respond to the Section 42 Notice by
serving a Counter Notice in reply, then the leaseholder must apply to
the Tribunal not later than 6 months from the date by which the freeholder should have served the Counter Notice.
Q. What happens if I don’t apply to the Leasehold Valuation Tribunal?
A.If
you do not apply to the Tribunal within six months from the date of the
freeholder’s Counter Notice, then you will have in effect withdrawn
your Section Notice. Otherwise you can expressly withdraw your Notice
at any time. Bear in mind that if you do withdraw your Notice, you
will still be liable to pay the freeholder’s legal and surveyor’s costs
and you cannot make a new application to the Tribunal for another year.
Q. What is the procedure once terms have been agreed?
A. Once terms have been
agreed, a completely new lease is prepared by the solicitors, one copy
is signed by you and the one copy is signed by the freeholder. Once
you have paid the lease premium and the other costs mentioned above,
your solicitor will register your new lease at the Land Registry.
Please note that if you have a mortgage, your solicitor will need to
obtain your lender’s consent. Some lenders charge a fee for supplying
this consent.
Q. What happens if I can’t find the freeholder or he just doesn’t respond to my Section 42 Notice?
A. If this happens, then
rather than applying to the Leasehold Valuation Tribunal, your
solicitor can apply to the Court for a “Vesting Order”. If
the Court is satisfied that you are eligible to extend your lease, then
it will in effect, grant the Lease to you in the absence of the
freeholder. The Court will usually ask the Leasehold Valuation
Tribunal to determine the lease premium that you should pay.
Q. I am buying a leasehold property with a short lease. What should I do?
A. If you are buying a
leasehold property with a short lease which you want to extend, then
obviously you do not have the right to do so because you not have owned
the property for at least two years. Provided that the seller is
himself eligible for a lease extension, there are two ways around this:
either the seller can agree terms privately with the freeholder to
extend the lease and the new lease can be granted directly to you on
completion of your purchase; or the seller can serve a Section 42
Notice upon the freeholder requesting him to grant an extended lease.
The benefit of the Section 42 Notice would then be transferred to you
on completion. You would then be able to demand a new lease from the
freeholder as if you had actually owned the property for at least two
years.
If
you are getting a mortgage, bear in mind that lenders will not usually
agree to grant you a mortgage on the property you are buying if the
lease has less than 55 years left to run. Your solicitor will be able
to check this for you.
Q. Are all leaseholders automatically entitled to a lease extension?
A. No. There are some situations in which a leaseholder is excluded from the right to a lease extension. These are as follows:-
- The freeholder is a charitable housing trust and the flat is provided by the charity as part of its charitable work;
- The leaseholder has sub-let his flat on a long lease;
- The lease is a business lease.
Also, some properties are completely excluded from the right to a new lease. These are as follows:-
- Buildings within a cathedral precinct.
- National Trust properties.
- Properties owned by the Crown*
* Although the Crown is not bound by the legislation the Minister has made a statement to the House of Commons that the Crown will be prepared to comply with the principles of it.
