How to extend your lease

Lease extensions can seem tricky at first glance, Chris Glew from myleasehold provides a brief guide to equip you with a basic knowledge of the process, where to start, and help you figure how what questions to be asking along the way.

You have a right to a lease extension

This brief guide will equip you with a basic knowledge of the process, where to start, and help you figure how what questions to be asking along the way.

Firstly, if you have owned your flat for more than 2 years, subject to your solicitor’s confirmation, you are legally entitled to a lease extension of 90 additional years (that is, 90 years on top of the current unexpired lease term), with the ground rent for the entire new term being reduced to a “peppercorn” (nil).

In other words, the Landlord is compelled to grant you this lease extension. The only issue to be agreed is how much you pay.

Step 1- Valuation

How do you know how much a lease extension will cost? Or how much to offer as a starting point? You will need a Chartered Surveyor to undertake a valuation. It is always advisable to instruct a specialist Surveyor in this area of work.

A comprehensive list of specialist surveyors and solicitors can be found in the ALEP directory.

There is a calculation set out in the law as to how a lease extension should be valued. The calculation is, however, subject to a number of variables.

As a result, the price paid is subject to negotiation. Typically the tenant will make an offer to the landlord at a lower level, and the landlord will respond with a counter-offer at a higher level. From there both parties (usually via their surveyors) negotiate a fair premium.

Take a look at the myleasehold Extension Calculator for a quick and easy indication of the likely cost of your lease extension.

Step 2- Making an offer

Once you have read your surveyor’s report, you will be in an informed position to enter into negotiations with the Landlord. It is at this stage you would want to look at instructing a solicitor. Making an offer can be done in one of two ways:

Formally, by instructing a solicitor to serve a Notice of Claim - which offers your Landlord a premium and claims your right to a 90 year lease extension without a ground rent. The Landlord then responds by way of Counter Notice including the counter offer premium proposal, and they must do so within 2 months of the date of your Notice of Claim.

Informally, by way of written correspondence. Outside of the provisions of the relevant legislation, you and your Landlord can come to whatever agreement you decide. You could make a written offer for the equivalent of a “statutory” lease extension (i.e. 90 additional years without a ground rent), or you could propose different terms. However, the Landlord is not obliged to negotiate informally with you – it is at their discretion whether they want to negotiate or respond to an informal approach.

These types of negotiations should always be entered into having taken professional advice, and with caution. Things to look out for are, among others, new ground rents or ground rents that double, new leases of less than 125 years, or changes to the covenants within the lease. Your surveyor and solicitor can assist during this process.

Step 3- Negotiation
Once the Landlord's counter offer has been made, either by way of a formal Counter Notice or by informal correspondence, the negotiations commence.

The negotiation of the premium payable usually takes place between the Surveyors of the two parties (Landlord and Tenant).

Step 4

Premium agreed, lease extended

Once a premium has been agreed, the new lease will be granted through yours and the Landlord's solicitors. Your solicitor will agree the terms of the new lease.

Don't agree, tribunal determines premium

In cases where Notices have been served and the parties are unable to agree, Tenants are able to apply to First Tier Tribunal (Property Chamber) for them to determine the premium that should be paid.

In the event that the matter was to proceed to the FtT, neither side is usually capable of recovering their costs. This is always an important negotiating point, because it places the onus on each party to be realistic. Recourse to a tribunal can be a costly way of settling the premium and should always be entered into as a last resort, and having undertaken an analysis of the cost compared to the benefit.

 

myleasehold offer expert advice, a friendly, professional service and a cost-effective solution for your lease extension or freehold purchase valuation. They won “Valuers of the Year” at the 2018 Enfranchisement and Right to Manage Awards.

Reviewed: July 2019