The Leasehold Reform Act 1993 gives certain tenants the right to extend their long term leases in London and other parts of England. But what should you know about Lease Extensions?
Firstly you need to know:
Who can extend?
You can apply to extend your lease only if you are what is known as a “Qualifying Tenant” under the 1993 Act. You are a Qualifying Tenant if:
1.) You are the tenant of a residential flat.
2.) You are not a business tenant.
3.) The original term of your lease was longer than 21 years (or contains an explicit right for perpetual renewal); and
4.) You have been the owner of the lease for at least two years.
You have the right to claim a lease extension from your landlord if:
1.) Your immediate landlord is the freeholder of the property (if your immediate landlord is a leaseholder, the question of an extension will depend on the length of the term your landlord has left on his lease); and
2.) Your landlord is not a charitable housing trust.
(NOTE: There are other leases which may qualify for renewal. If you are unclear please seek professional legal advice.)
After meeting the qualification guidlines the next big question is:
What will it cost?
You will need to pay a premium for the lease extension. The price is the cumulative total of the following:
1.) The diminution of the value of the landlord’s interest in the flat.
2.) 50% of the marriage value of the existing lease term and the additional 90 year lease; and
3.) The compensation for loss in clause of other property owned by the landlord.
The date on which the tenant applies for a lease extension will be the date of valuation.
In addition to paying you own legal fees you will also be required to pay the landlord’s legal fees and the costs of the valuation.
Some other very popular questions that have been asked on lease hold are:
What happens if I want to buy a leasehold flat and I want to extend the lease?
As you need to have owned the lease for at least two years you will not be able to extend the lease after you have acquired it. Therefore, it is common practice for the seller of the leasehold to make an application to extend the lease and then assign the benefit of the application to you as purchaser.
What lease will I be granted?
You have the right to be granted a lease of 90 years (plus the present unexpired term) from the expiry date of your current lease. The rent will be a peppercorn (i.e. rent free). The lease will be broadly on the same terms as your existing lease but may be subject to amendment (depending on any modifications, exclusions and/or additions to the demised premises).
It is worth noting that the landlord will retain a redevelopment right at the end of the existing term of the lease. The landlord will have to pay the full value of the remaining 90 year lease to you and the termination is subject to a court application by the landlord.
What is the procedure?
As a Qualifying Tenant your solicitors will serve a preliminary notice to obtain information from your landlord. Your solicitors will then serve the notice of claim which will state:
1.) Details of the property.
2.) Details of the lease (showing that you are a Qualifying Tenant);
3.) Details of the premium offered; and
4.) A date for the landlord’s counter-notice.
The landlord should then respond and will probably require payment of a deposit equal to 10% of the premium offered.
The landlord will value the premises and serve a counter-notice which will state whether they object to the claim.
If the parties cannot come to an agreement they can apply for the Leasehold Valuation Tribunal to determine the claim.
This article is free to republish provided the authors resource box below remains intact.