The Leasehold Reform, Housing and Urban Development Act 1993 provides residential flat owners (i.e. the leaseholders) with the right to extend their lease provided certain conditions are satisfied. It is important to remember that one disadvantage of owning the lease of a flat is that it is a diminishing asset. This means that as the term of the lease reduces each year the lease becomes less valuable. As such in many circumstances, it can be financially beneficial for leaseholders to apply to extend the number of years on their lease.
The exercise of extending a lease is, in reality, actually the grant of a new lease by surrender and re-grant of the existing lease, with the new lease term being the number of years originally granted to the leaseholder, plus 90 years. The lease therefore continues a further 90 years after the end of the original term granted.
Am I eligible for a lease extension?
To obtain a lease extension you must own a long lease of the property and have owned it for the last 2 years. Generally, a long lease is a lease granted for a term exceeding 21 years. However, other leases also qualify.
It is important to remember that there are certain types of building/leases which will not qualify for a lease extension. For example, a business or commercial lease will not qualify.
What is the procedure?
The process is started by serving the initial notice, pursuant to section 42 of The Leasehold Reform Housing in Urban Development Act 1993, on what is known as ‘the competent landlord’. However, before serving a notice it is advisable to instruct a specialist valuer in order that you are aware of the estimated premium payable to extend the lease. There is a complex statutory formula required to calculate the premium and therefore a specialist surveyor should be instructed who is familiar with dealing with lease extensions.
It is important to identify all immediate landlords and any superior landlords as only the competent landlord can grant the lease extension. In most circumstances the competent landlord will be the freeholder i.e. the outright owner of the property. It is vital that the correct competent landlord is identified and therefore it is always recommended that specialist advice is obtained when dealing with a lease extension.
The notice triggers the process of acquiring the new lease. From the time that the notice is served, you, as the leaseholder, will be liable for the landlord’s reasonable costs in dealing with the extension.
The date that the notice is served on the competent landlord fixes the valuation date.
The notice should specify that the landlord has at least two months to provide a counter notice. If the landlord fails to provide a counter notice the leaseholder then has six months to apply to the County Court for a vesting order. This is essentially requesting that the Court confirms the lease extension on the terms proposed by the leaseholder.
If the landlord provides a counter notice disputing the claim the parties then must apply within two months to the County Court to make a declaration of the matters in dispute.
If the landlord responds admitting the claim but there is a further dispute as to the terms of the new lease then the parties can apply to the First-tier Tribunal to determine the issue. This application must be made between two and six months after service of the counter notice.
Do I have to pay a deposit?
Yes, the landlord is entitled at any time after receiving the leaseholder’s notice to request payment of a deposit. This may be 10% of the proposed premium in the leaseholder’s notice or £250, whichever is the greater.
A complex procedure!
It is important to obtain advice before commencing a claim for a lease extension. There is a substantial amount of work to be carried out before a claim can commence in order to ensure that a leaseholder is eligible for a lease extension. There is a strict procedure to be followed in accordance with The Leasehold Reform, Housing and Urban Development Act 1993 and for that specialist advice should always be obtained. Tripping up on the statutory procedure will inevitably lead to increased costs!
For further advice on exercising a right to a lease extension, please contact Harjie Singh Bindra on 01527 831691 or harjie.bindra@mfgsolicitors.com.
Comments