Lease Extension pitfalls

Written by Jodie Foster on Friday, December 14, 2018

There are many advantages of being the owner of a long leasehold property, however as the lease would have been granted for a specific number of years it means it is a diminishing asset.

If your Lease only has between 70-90 years remaining you should start to think about extending your Lease.  Thankfully the law gives Leaseholders the statutory right to extend their Lease, therefore increasing its value.

The Leasehold Reform, Housing and Urban Development Act 1993 (the Act) gives a Leaseholder the right to extend their Lease by a further 90 years and reduce the ground rent to “a peppercorn” (meaning no ground rent payable). This right however is subject to compensation known as “a Premium” (calculated by a specific formula) and the Landlord’s legal fees and Surveyors costs.

In order for a Leaseholder to take advantage of this right, they must have owned the flat for a period of at least 2 years (although the act contains a provision to assign the benefit of previous ownership on sale).

The Lease extension process is clear although there are a number of potential pitfalls which if caught by could prejudice a Tenant’s right to extend by a further 12 months.
A few easy tips to avoid these traps are as follows:

  1. Instruct a reputable surveyor to obtain a reasonable valuation and outline all likely costs.
  2. Instruct a solicitor familiar with the specialised area of Lease extensions to ensure that the Section 42 Notice (the initial notice served on the Landlord setting out the terms for the new Lease) is served correctly.
  3. Ensure that you have either a £250 deposit or 10% of your proposed premium available immediately after service of your initial notice.
  4. Keep an eye on the deadlines. The timetable in Lease extensions is very strict and it is imperative to ensure the deadlines are not missed.
  5. Once the terms and premium are agreed you only have 4 months to complete the matter so ensure that all finances are in place. This is especially important if you are re-mortgaging. All parties should keep in regular communication with regards to each stage of the process.
  6. If the premium cannot be agreed, as long as you are within the timeframe, you can apply to the First-Tier Tribunal who will settle the matter.
  7. Once the extension has been granted, make certain that it is registered at the land registry.

Alternatively, a Leaseholder can approach their Landlord to consider extending their Lease on an informal/voluntary basis (outside the act). There are no legal requirements as to the terms of the Lease, however it is usually negotiated for the grant of a new Lease of 125 years and subject to a higher premium and increasing ground rent. This is especially beneficial to non-qualifying Leaseholders i.e. if they have not owned the property for the statutory period of 2 years.

For further information and fees estimate please contact Jodie Foster on Jodie.Foster@PDCLaw.co.uk or call them on 01992 668 161

Jodie Foster

Jodie is a solicitor and Head of the Property and Leasehold Enfranchisement Team. She joined the firm 2017 as a real estate transactional specialist with considerable experience in a broad range of residential estate transactions, including acquisitions and disposals, landlord and tenant matters, other occupational property transactions, and right to manage. She also has significant and demonstrable experience in leasehold enfranchisement transactions and other residential matters having worked in this area for 10 years. Many of Jodie’s clients are large commercial agents, owner-manager, and other property portfolio managers.

Jodie has excellent organisational skills and takes great pride delivering the highest standards of client care.

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