Do I need to extend my lease?
Do you own a flat? If you do, ask yourself “how long is left on the lease?” Does the lease have less than 80 years remaining? If so, you should definitely consider extending the term of the lease. This is because if you try and sell the property, a buyer will have difficulties in obtaining a mortgage for a property with a short lease and they will be put off buying your flat. Lenders will not lend on leases of less than 80 years remaining. In addition, if you leave it to the last minute to extend your lease (less than 80 years remaining), you may have to pay a higher price to the freeholder/landlord to extend the lease. In practice you should consider applying to extend your lease when it still has 85 years left on it. The boring legal bits now follow.
Private Agreement with Landlord or Follow Statutory Procedure?
You could come to an agreement privately with the landlord to extend the lease. The advantage of this is that you do not have to go through a very rigorous statutory procedure which can be time consuming and costly. If a price can be agreed you can quickly proceed to extending your lease. However, there may be drawbacks. If you follow the statutory procedure, then you are guaranteed an extension to your existing lease term by a term of 90 years. In addition, the ground rent will automatically become a nil rent. A landlord in a private agreement may want to continue having the benefit of a rent and will be reluctant, to say the least, to reduce the rent to nil. The landlord may also want a very large payment for an extended term which maybe less than 90 years. And after all that, if the landlord changes his mind, you may have to start over again.
The Act which governs the procedures for lease extensions is the Leasehold Reform Housing and Urban Development Act 1993.The timetables set out in the Act for applying for a lease extension are very strict. If you fail to keep to the deadlines, your whole application could become void and your application deemed to be “withdrawn”. Even worse, you could be prevented from applying for a lease extension for another 2 years. This could have a huge impact on the price you ultimately pay for the lease extension, especially in a market where prices are rising. Therefore, I cannot stress enough that you seek specialist legal advice and instruct a solicitor who knows the procedures well. Though there are possible drawbacks with this procedure (see below), the benefit of following the Act is that you know that once you have started to follow it, that the landlord cannot change his mind about agreeing to extend the lease by 90 years. Then the only matter to be agreed upon is the price you will pay.
What are the legal steps?
You should instruct a solicitor who will deal with the application to extend the lease. The solicitor will need to instruct a surveyor to carry out a valuation of the property for the extended lease. You could instruct a surveyor independently but as the solicitor will work closely with the surveyor, it may be best to allow the solicitor to find a suitable surveyor. The valuation is quite a technical exercise as the surveyor has to take into account not just the values of properties in the area but certain formulas to ascertain a valuation figure.
If the lease term falls below 80 years, then the valuation would involve a figure for the “marriage value”. This is the increase in the value of the property as a result of the lease extension.
Once a valuation has been done, your solicitor will prepare and serve on the landlord a notice. This is known as a section 42 Notice setting out the proposed price and length of extended term. The solicitor also has to set out a date not less than 2 months from the date the notice is served. This to allow the landlord to provide a counter notice. This date is probably the most important element in your notice (apart from naming the correct landlord). If you get this wrong your whole claim could be jeopardised. Inevitably, the landlord’s surveyor will provide a much higher valuation. Once a counter notice has been served, the two surveyors can commence negotiations with each other. In most cases the surveyors will agree a compromise figure which your surveyor will recommend that you accept. If you do accept this figure, and this is communicated to the landlord’s solicitor, he or she will then be able to prepare a new lease which sets out the agreed terms. Again there are various time deadlines which the legal advisors must follow.
Once the new lease has been agreed, it will need to be registered at the Land Registry. Please also be aware, that depending upon how much you will be paying for the lease extension, SDLT (stamp duty) maybe payable.
If an agreement cannot be reached, in very rare circumstances you can apply to a Tribunal to make the final determination.
If you wish to extend your lease, please contact Shakeel Mir on 020 3150 1919. Shakeel specialises in lease extension work and would be happy to have an initial discussion with you.