Frequently Asked Questions - Statutory Lease Extensions
For a number of years most residential flat owners have had the right to extend their leases. There have been a number of legislative changes which have on the whole extended and simplified that right. As one would expect there are qualifying criteria to be met and special circumstances and exceptions. Nevertheless the right is very valuable and which should be considered sooner rather than later.
There is a similar right to extend the lease of house but it is more common for the leaseholder to seek acquire the freehold wherever possible. See FAQ Enfranchisement of a Leasehold House.
This is a highly technical area in which complex legal and valuation issues can arise. These FAQs are necessarily general in nature and you should not act or refrain from acting without taking specialist advice on your particular circumstances.
What are the qualifying criteria?
A: The main ones are as follows and it should be noted that there are a number of exceptions and special situations:
- The flat must be held under a long lease i.e. one which was granted for a term of more than 21 years
- The flat must have been owned by you for more than 2 years
It is no longer necessary for you to have lived in the flat. There is no residency qualification, only one of ownership.
Why should I extend my Lease?
A: As the length of the unexpired term of the Lease decreases so does its value. If the Lease has, for example, more than 100 years to run then this decrease may be negligible but there will come a stage when it will become significant. Particular points to bear in mind are:-
- If a lease has less than 80 years unexpired when you seek to extend it then as part of the price you will have to pay what is known as a marriage value to the landlord. This could be significant. This is a key reason why you should consider extending sooner rather than later.
- You may encounter difficulties if you want to sell your flat if the unexpired term is less than is regarded as mortgagable by most lenders. Different lenders have different criteria but they are generally looking for an unexpired term of at least 60 years. There are special considerations applying to flats in certain prime Central London areas.
Another way of extending a Lease is for you to co-operate with other flat owners in your building to exercise the right to collective enfranchisement once the freehold has been acquired for an extended lease to be granted to the participators – see FAQ Collective Enfranchisement. However there may be circumstances where this is not possible or desirable.
How much will I have to pay?
A: The valuation formulae are complex but are primarily based on ground rents and yields and the length of the unexpired term. As specified above it is very important to be aware if your lease has less than 80 years left at the date you serve your Notice on the landlord you must also pay a marriage value which can considerably increase the price.
Do I need a valuer?
A: It would be extremely unwise not to have a formal valuation or a valuer specialising in this field. Even for negotiations you need to have an idea of how much you are likely to pay and it is necessary to specify a price in the Initial Notice. If the price is unrealistic this could lead to your Notice being declared invalid.
How long a lease extension will I get?
A: 90 years in addition to the unexpired term of your existing lease, so if your lease has 70 years left whenever you make the claim your new lease would be for 160 years.
Will I still have to pay ground rent?
A: No. The ground rent will be reduced to a peppercorn meaning that no further ground rent should be payable.
Will the terms of the lease change?
A: Generally the other terms stated stay the same. Sometimes the landlord will want to ‘modernise’ the lease which normally means making changes in their favour. Often these changes can be opposed. Also if your lease no longer complies with mortgage lenders requirements the process is an opportunity to remedy these defects, making it easier for you to sell or remortgage as and when you wish to do so.
What other costs must I pay?
A: You will also have your professional costs which will be those of your solicitors and surveyors and, in some more complex cases, possibly those of a barrister. Estimates should be obtained. Importantly, you should note that if you do serve a notice on the your landlord then you will be liable for the reasonable costs of the landlord in connection with any investigation the landlord is required to carry out, obtaining a valuation of your flat, and negotiating and granting a new lease to you. There will also be the usual payments to third parties as with any conveyancing transaction including Stamp Duty Land Tax (depending on the price you pay), Land Registry fees and other incidental disbursements such as search fees. As this is a specialist area any professional fees are unlikely to be cheap but we believe that we provide good value for money. The ultimate cost will depend on a number of factors including the complexity of the transaction and how long it takes and importantly whether or not it is necessary for the matter to be referred to the First Tier Tribunal.
What happens if the Landlord disputes my entitlement to claim or we cannot agree on the price?
A: In most instances the only matter in dispute is the price. This is usually resolved by negotiation between the valuers for each party. In those cases where there is a dispute as to price the matter can be referred to the First Tier Tribunal (‘FTT’). In the unlikely event that the landlord disputes the claim then he rather than you must apply to the court (not the FTT). Although, as mentioned above, you are required to pay the reasonable costs of the landlord you are not liable for the costs of the landlord in respect of any proceedings before the FTT unless the FTT determines that you have acted unreasonably in the proceedings and even then the amount it can award is very limited. Such awards are very rare.
Must I wait 2 years to claim a new lease?
A: Generally yes. However there is one way around this. If you are in the process of buying a flat and the seller has owned it for more than 2 years, they can serve a claim notice and then assign (transfer) the rights under that claim to you when you complete the purchase. The seller will probably want their costs paid and there are a number of technical issues to consider, so specialist advice is essential.