Extending the Lease of a Residential Flat – The Initial Steps
If you hold a long lease of a flat, you may be entitled to obtain an extended lease on payment of a premium.
If the lease extension is successfully obtained, you have the legal right to be granted a new lease with a term equal to the remainder of the term under your existing lease plus a further 90 years. The extension will also result in the ground rent being reduced to a peppercorn. However, a premium will be payable for the extension. This will be calculated in accordance with a statutory formula (see “The unexpired term and potential marriage value”, below).
In order to be able to exercise this right, you must satisfy certain criteria.
The Qualifying Criteria
To use this process the property in question must be a flat. In order to have the right to extend your lease, you will have to be able to show that:
- You have held the lease for a minimum of 2 years. It is important to note that the duration of your ownership is not calculated from when you purchased the property but from the date that you were registered as the leasehold proprietor at the Land Registry. It is also worth noting that if a tenant who was entitled to exercise the right dies, their personal representatives are able to exercise the right on their behalf.
- You hold the property under a lease with a long term. If when the lease was granted it had a term of more than 21 years, this requirement is likely to be satisfied.
Early Investigations – What Steps to Take
It is of paramount importance that investigations into the above qualifying criteria are carried out an early stage. The following factors must also be looked into as soon as possible in order to ensure that potential problems are avoided:
- What is the Unexpired Term?
You must check to see what length of the lease term remains. If the remainder of the term is 80 years or less, you will be liable to pay what is known as marriage value which can potentially be substantial. This should therefore be ascertained as soon as the option to extend the lease is considered.
- Who is the competent landlord?
The initial notice must be served on what is defined as “the competent landlord”. This will not necessarily by your immediate landlord. The competent landlord for the purposes of the legislation will be the first landlord who has a sufficient reversion to grant you a new lease with an extension of 90 years.
You should therefore verify the length of your immediate landlord’s reversion. For example, if there is an unexpired term of 50 years under your lease, your landlord will have to have an unexpired term of at least 140 years (i.e. the length of the remainder of your existing term plus the statutory extension of 90 years).
In order to ascertain the identity of your competent landlord you should obtain office copy entries from the Land Registry and consider the last rent demand received. It is usually advisable to submit a formal request for confirmation of the position.
- What is the premium?
As stated above the price payable is calculated in accordance with a statutory formula but is commonly negotiated using the formula as a guide. Whilst there is no requirement to have a formal valuation, this is usually advisable as having a detailed valuation carried out by an expert surveyor enables you to negotiate with certainty. It is also advisable to ascertain the likely premium at an early stage to ensure that obtaining a lease extension is financially viable.
Do not be tempted to state an unrealistically low premium:
It is important to note that if an unrealistically low premium is stated in the Initial Notice, this may result in it being deemed invalid.
It is therefore advisable to obtain a valuation from a surveyor experienced in the field of leasehold enfranchisement.
- What other costs are involved?
You will not only have to pay the premium (as set out above). You will also have to pay your surveyor’s costs, solicitor’s costs and any administration fee payable to your mortgage company for providing consent (if required). In addition, you will be liable for the landlord’s costs, Land Registry fees and stamp duty land tax if applicable.
- Are there any defects in the existing lease?
It is important that your existing lease is considered in detail. Save for the length of the term and ground rent (see above), the terms of the renewal lease must be similar to those contained in the existing lease. However, it is possible for the terms to be varied in order to remedy any defects in the existing lease or for the purposes of modernisation. This is therefore a valuable opportunity to remedy any defects and should be fully utilised.
The Initial Notice
Once the above investigations have been carried out, the tenant’s initial notice will have to be prepared and served on the competent landlord.
The Initial Notice must contain the following:
- Particulars of the flat in question. The extent of the property must be set out and it is advisable that this is done by way of an attached plan. It is important to ensure that any ancillary property such as garages, parking spaces, gardens etc are included.
- Details of the lease under which the property is held, including the date of the lease, the term and commencement date.
- The premium offered and any apportionment of the premium (see note above).
- The full name of the leaseholder and the address of the flat in question.
- The proposed terms to be contained in the new lease.
- A date by which service of the landlord’s counter-notice is required. This must not be less than 2 months after the date of service of the initial notice.
The Initial Notice has to be signed personally by the tenant. It cannot be signed on the tenant’s behalf. If there is more than one tenant then all of them must sign the notice.
It is extremely important that the above steps are carried out with care and that the Initial Notice is not invalidated by any inaccuracy or omission. If you would like guidance on whether you are entitled to extend your lease or would like assistance with preparing the initial notice, Darlingtons would be happy to assist.
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