The lease extension process - making it happen

Making it happen

The lease extension process starts with the valuer. A valuation report calculation from a qualified and experienced leasehold enfranchisement valuer sets out the likely cost of the lease extension. The valuer will also suggest the premium to be inserted into the Section 42 Notice (“the Notice”) which is generally 15-20% below the valuation.

Enter the solicitor. He or she will include the premium in the Notice to be served on the freeholder and any other landlord and which outlines the leaseholder’s claim to extend the lease. This Notice is pivotal to the whole lease extension process and must be prepared by a solicitor specialising in leasehold enfranchisement.

Serving Notice

The Notice should preferably be served by hand and proof of delivery requested so that the Notice can’t be disputed at a later date. The Notice must be served on what is known as the ‘competent’ landlord - the person who has the legal right to grant a 90-year lease extension. This is generally the freeholder, although in some cases there may be intermediate landlords as well.  All relevant landlords must be served with a copy of the Notice and this also includes management companies and any other party to the existing lease.

The Notice triggers the statutory procedure for acquiring the new lease and the leaseholder will be liable to pay the competent landlord’s ‘reasonable and recoverable’ costs from the date the Notice is served. These are set out in “What Will it Cost?” below.

The Notice should give a response date not less than two months (two months and ten days is advisable) from the date it was served and the registered owners of the flat must sign the Notice personally. It can’t be signed under a Power of Attorney and if the leaseholder is a company, that company must execute the Notice in accordance with its Memorandum and Articles of Association.

The leaseholder’s solicitor will then lodge a ‘Unilateral Notice’ at the Land Registry against the freehold and any intermediate leasehold titles. The fee payable for this is £50. If the property in question is not listed by the Land Registry (ie, it is unregistered), a Class C(iv) Land Charge should be lodged. This provides protection for the leaseholder if the landlord decides to sell the freehold and means that the lease extension process will continue as if the new owner had received the Notice.

Fixing the cost of the lease

The date when the Notice is served fixes the valuation date. This means that variables such as the unexpired term of the lease, the present value of the flat and its assumed future value are set and any further changes will not affect negotiations. The competent landlord’s solicitor acknowledges receipt – normally without admitting the validity of the claim – and will include current copies of the leasehold title, a full copy of the lease with a coloured plan and a request for the statutory deposit which equates to 10% of the total premium offered in the Notice.

The solicitor will then request access arrangements to the flat so that the landlord’s valuer can carry out his or her valuation of the property.

The competent landlord must serve the leaseholder via his or her solicitor with a ‘counternotice’, no later than the response date specified in the Notice. This will set out whether or not the claim for a lease extension is accepted and any other terms of the lease extension which the landlord may want included in the new lease in due course.

The valuers appointed by the leaseholder and freeholder then have the opportunity to negotiate and agree terms acceptable to both parties.  It is open to either party to apply to the First-tier Tribunal (“FTT”) not less than two months and not more than six months from the date of the counternotice.  In a minority of cases where agreement can’t be reached by negotiation, the matter can be heard by the FTT who will determine the premium and terms of the lease extension if these can’t be agreed in advance of the Hearing.

What will it cost?

Leaseholders are liable for their own legal and valuation costs and – where one is needed – the fees of a barrister and/or valuer to represent them at the FTT. There will also be Stamp Duty Land Tax to pay if the premium is more than £125,000 (refer to HMRC for current rates) as well as Land Registry fees and other costs such as search fees. The leaseholder is also expected to pay the landlord’s reasonable legal and valuation fees. Legal fees are limited to the costs related to consideration of the Notice; requesting deduction of title and the statutory deposit; requesting access details in order to carry out the valuation and the valuer’s fee; and dealing with all aspects of conveyencing through to completion.  The premium paid for extending the lease is established from the outset by the valuer and the way this is calculated is explained in detail on page?.

Getting it right

Reasons why a lease extension may not be granted are:

  • If there are inaccuracies in the original Notice;
  • If the premium offered in the Notice is unreasonably low; or
  • If the property has not been owned and registered at the Land Registry for a period of two years.

To make sure your lease extension goes through as smoothly as possible it is vital that you get good advice from an experienced solicitor. Leasehold enfranchisement is a complex field of law so make sure you get it right first time and choose a solicitor and valuer with a proven track record in the leasehold sector.

What is the role of the solicitor?

Once you have found a solicitor to act on your behalf he or she will:

  • Check whether the leaseholder qualifies for a lease extension;
  • Draft the section 42 Notice and serve it on the ‘competent’ landlord (usually the freeholder) and any      intermediate landlord;
  • Deduce title and pay the statutory deposit to the competent landlord’s solicitor;
  • Make access arrangements for the valuer/s acting for the landlord/s;
  • Receive the counter notice and send a copy to the appointed valuer
  • Arrange for the valuers to open negotiation
  • Apply to the FTT not less than two months and not more than six months from the date that the counter notice is served. This protects the Notice and makes sure it is not thought to have been withdrawn; and
  • Negotiate the terms of the new lease with the competent landlord’s solicitor and agree the costs that the leaseholder will be expected to pay.