What is a statutory lease extension?
The Leasehold Reform, Housing and Urban Development Act 1993 (“the 1993 Act”) allows lessees to extend their lease by 90 years in addition to the unexpired term of their lease at a peppercorn rental by serving a Section 42 Notice (“Notice”) upon their landlord.
Why extend a lease?
As the length of the unexpired term of a lease gets shorter, the premium payable to extend the lease increases:
- If a lease has less than 80 years unexpired then marriage value is payable to the landlord, which could be significant.
- Lessees may encounter difficulties if they wish to sell their flat if the unexpired term is considered unmortgagable. Different lenders have different criteria but generally require an unexpired term of at least 70 years.
Selling with a short lease can be overcome and this can increase the value and the marketability of a flat.
Qualifying for a statutory lease extension
- The flat must be held under a long lease i.e. one which was originally granted for a term of more than 21 years; and
- The flat must have been owned for more than 2 years.
Personal Representatives of a deceased lessee can serve a Notice provided that the right is exercised within 2 years of the grant of probate.
There are exceptions and advice should be sought to check that a lessee is eligible to serve a Notice.
Are any lessees excluded from obtaining a lease extension?
A lessee will not be able to exercise the right for a new lease if:
- the lease is a business lease;
- the landlord is a charitable housing trust and the flat is provided by the charity as part of its charitable work;
- the building is within a precinct boundary of a cathedral; and
- the building is built on land held by the National Trust, or, the building is owned by the Crown, except where the competent landlord is not the Crown.
Selling a flat with a short lease
If a lessee is selling a leasehold property and is willing to serve a Notice on the landlord to acquire a lease extension and to assign the benefit of the Notice to the buyer upon completion, an experienced solicitor can assist. A seller willing to serve a Section 42 Notice will find that this greatly assists saleability.
The seller serves a Notice upon the landlord usually after exchange. Upon completion, the seller and the buyer execute a Deed of Assignment of the Benefit of the Section 42 Notice which enables the buyer to step into the seller’s shoes upon completion and continue with the lease extension process as if they had owned the flat for 2 years.
Buying a flat with a short lease and extending the lease
Ideally a prospective buyer should look to purchase a leasehold property with a lease which has 83 years or more unexpired on its term so that they are in a position should to apply for a lease extension. Note that they would need to wait for 2 years from the date of registration at the Land Registry should they decide to extend their lease after the purchase of the property.
If a prospective buyer is looking to purchase a leasehold property and the lease has between 80 and 82 years unexpired and certainly if less than 80 years, it is advisable to ascertain whether the seller of the property is in a position to serve a Notice to extend the lease and to assign the benefit of the Notice to the buyer on completion. This will enable the buyer to assume the seller’s rights to a long lease and pursue the lease extension after completion. Further, this avoids the need for the buyer having to wait 2 years before being entitled to serve a Notice, when the premium will be inevitably higher.
Conclusion
Enfranchisement is a complex field of law which should be undertaken only by specialist leasehold enfranchisement solicitors and specialist valuers. In short, take proper advice to avoid the many pitfalls.
