Extend your Lease
A leasehold property is a diminishing asset. However, qualifying flat owners have the separate individual right to purchase a new lease. A flat owner is entitled to buy an extension of his existing lease by a term of 90 years at a nominal rent. Flats with short leases are often difficult to market so you may find yourself having to obtain an extension in order to sell.
For a flat owner to qualify the lease must have originally been granted for 21 years and the flat owner must have owned the lease for at least two years prior to making the claim. Leases such as business leases are excluded.
The flat owner should try to agree a price with the landlord but if this fails there is a procedure whereby the Leasehold Valuation Tribunal decides what the correct premium is.
If the lease is just above 80 years in length then the flat owner should consider making an application immediately as the formula for working out the price of the extension is different if the lease is less than 80 years resulting in a much higher price.
Procedures
If the flat owner cannot reach an amicable agreement with the landlord regarding the price for obtaining a lease extension, he must then serve a notice on the landlord. Establishing who the correct landlord is can be difficult so if in doubt you should take advice from your lawyer.
Flat owner's notice
This is the first real step in making an application to extend the lease. The flat owner must serve a notice on the correct landlord. The notice must, in addition to stating the flat owner's name and address, contain various information including: -
- Information about the flat;
- Price that the flat owner proposes to pay;
- A date by which the landlord must give his counter-notice.
It is very important to ensure that this notice is correct and that the premium proposed is realistic. If it is not, then a notice can be invalid. The flat owner must personally sign the notice.
Price
This is made up of three factors: -
- An amount referable to the diminution in value of the landlord's interest in the flat.
- The landlord's share of any marriage value except where the leasehold has an unexpired term of 80 years or more, in which case it is treated as nil (the marriage value is the potential increase in the value of the flat with the extended lease and this value is normally divided 50:50 between the landlord and flat owner.
- Compensation if the landlord suffers losses once the new lease has been granted. This is difficult to work out but might be relevant if say the landlord planned to turn the building back into a single dwelling house.
Once the notice has been served, the landlord has the right to inspect the flat in order to carry out his valuation. The landlord must then give his counter-notice by the date specified in the flat owner's notice (which must not be less than two months after the date on which it is given). In his counter-notice the landlord must state either that he admits that the flat owner is entitled to acquire a new lease or that he denies that he is entitled to one, in which case reasons must be given. In either case, the landlord must also state, if appropriate, that he will oppose the flat owner’s claim on the basis that he intends to develop the premises and the flat owner's lease will come to an end within five years of the date on which the section notice was given.
Application to a Court or to a Leasehold Valuation Tribunal
The landlord may assert that the flat owner is not entitled to a new lease. He may for example say that the flat owner has not owned the flat for long enough or that the lease is a business one. If the court is satisfied that the flat owner did not have the right to a new lease, it may make a declaration to this effect. If flat owner and landlord cannot agree new terms then either may apply to a tribunal.
Assuming issues of entitlement have been resolved and the terms agreed, then the landlord is under an obligation to grant a new lease at a peppercorn rent for a term, which will expire 90 years after the date on which the existing lease would have come to an end. This lease is granted in substitution for the existing lease and the flat owner is required to pay a premium and such sums as the landlord's reasonable costs and any outstanding rent. The terms of the new lease (apart from the length) are the same as the old one unless there have been changes to the property or landlord.
If you have any queries about this area of law please contact Jonathan Kenwright of Maitland Walker Solicitors tel 01242 285 855 or alternatively e-mail your enquiry Jonathan Kenwright.
As this information has been prepared by Maitland Walker Solicitors as a general guide, we recommend that you seek specific professional advice before acting upon the information contained within it. No liability can be accepted by Maitland Walker for any action taken or not taken as result of this information. Maitland Walker is regulated by the Solicitors Regulation Authority.