Lease Extensions (Statutory v Non-Statutory Lease Extensions)

Leasehold Enfranchisement

Ownership of leasehold properties is for a length of time set out within the lease of the property, commonly known as the “Term”. The remaining term of a lease significantly affects the value and marketability of a leasehold property. Once the remaining term of the lease has dropped below 80 years, it is unlikely any mortgagee will be prepared to provide a mortgage to help a purchase buy the property, thus significantly reducing the number of potential buyers. The premium payable to extend your lease can also increase dramatically due to the “marriage value” (the increase in the value of the property following completion of the lease extension) which is deemed to be zero for leases with more than 80 years left on their term, but not for those with less than 80 years remaining. We therefore recommend that you should get in touch with us to discuss the options available to you to extend your lease in good time before the remaining term reduces below 80 years if possible.

There are two ways you can extend the lease on your flat, either by way of a Statutory Lease Extension or an Informal Lease Extension.

 

Statutory Lease Extension

Statutory Lease Extensions, also known as ‘formal’ lease extensions, allow eligible leaseholders who are a ‘qualifying tenant’ to extend their lease under the Leasehold Reform, Housing and Urban Development Act 1993 (‘the Act’). Under a statutory lease extension, the new lease will grant a term of an additional 90-years in addition to the unexpired term of the lease, at a peppercorn rent (i.e. no ground rent is payable). it is important to note that the process typically takes between 4 and 12 months.

 

1. Eligibility
We will first need to check if you are a ‘qualifying tenant’ to apply for a lease extension under the Act. In order to be eligible, you must have been the registered owner of your property for at least two years and, when granted, the lease must have been for a term of more than 21 years.

 

2. Valuation of the premium payable to extend your lease
You will be required to obtain an independent valuation by a RICS valuer at your own expense, who will confirm the premium payable to the landlord/freeholder to extend your lease by 90 years.

 

3. Serving the Section 42 Notice ‘Initial Notice’
Once you have obtained your valuation, you can instruct us to handle the serving of the section 42 notice on the landlord/freeholder.

The notice must be served on all relevant parties and requires certain details to be included in order to be valid.

It is paramount to ensure that the notice is prepared and submitted correctly, as any inaccuracies, delay or shortcomings in the service process could render the notice invalid.

Once the notice has been served on the landlord/freeholder, the leaseholder is responsible for the landlord/freeholder’s reasonable valuation and legal costs of entering into the new lease, as well as their own.

 

4. Landlord’s Section 45 Counter Notice
Under the Act, the landlord/freeholder must respond with their Counter Notice within at least two months from the date of service of the section 42 notice.

The landlord/freeholder may ask for a deposit of 10% of the premium that has been specified in the section 42 notice to be paid within 14 days. The landlord/freeholder may also request further information by way of evidence of your eligibility under the Act and to access to your property to carry out a valuation.

The landlord/freeholder will then serve a counter-notice which will generally either agree to your request and the terms proposed by you or agree to your request but propose alternative terms.

However, it is possible for the landlord/freeholder to contest your eligibility of the validity of your notice or to reject a claim on other limited grounds.

If you and your landlord/freeholder are unable to reach an agreement within 6 months of the counter-notice, an application must be made to the First-Tier (Property) Tribunal to determine your claim.

 

Non-Statutory Lease Extension

Non-Statutory Lease Extensions, also known as ‘informal’ lease extensions allow a landlord/freeholder and a leaseholder (regardless of how long they have owned the property) to agree the terms of a lease extension ‘up-front’; usually subject to your landlord/freeholder obtaining valuation advice at your cost. You do not need to serve a statutory notice and unlike the statutory route, the terms of the lease extension agreement are not fixed at an additional 90 years and a peppercorn ground rent. However, negotiations are not always successful. In the event of an unsuccessful informal approach, there is still the right for a leaseholder to apply formally through the statutory route (subject to the eligibility criteria set out above), but time and money may have been expended in the interim.

 

 

This document is for general information only and is not intended to provide legal advice. Dixon Ward accepts no liability in connection with any loss suffered as a result of reliance on the information contained in this Factsheet. If you require further legal advice, please get in touch with one of our specialist lawyers.

Our Leasehold Enfranchisement team

Dixon Ward | Business & Employment Law | Dispute Resolution | Leasehold Enfranchisement |Rob Horler| Our Story

Rod Horler

Business Law & Employment / Dispute Resolution
[email protected]

Dixon Ward | Business & Employment Law | Dispute Resolution | Leasehold Enfranchisement | Sharon El-Nawar

Sharon El-Nawar

Dispute Resolution / Business Law & Employment
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Dixon Ward | Business & Employment Law | Dispute Resolution | Leasehold Enfranchisement | Aryana Odisho

Aryana Odisho

Dispute Resolution / Business Law & Employment
[email protected]

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