Extending your lease can be a long and complicated process. This article will guide you through each part of the process; costs and how to get the right expert help so you can take charge of your lease extension.
How can I extend my lease?
Informal Route – A Leaseholder can approach their freeholder for an informal lease extension at any time, the aim is to negotiate with the Freeholder (landlord) the additional years to be granted, alterations to the ground rent, premium payable and any other changes both parties may wish to make to the lease without serving a statutory notice.
The lease can be extended up to 999 years, but the freeholder will charge a premium and ground rent could even be increased. Although, this is usually the fastest and cheapest of the two routes.
If an approach is made to your Freeholder but an informal agreement cannot be reached, you do still have the right to apply formally, as below.
Formal Route – Also known as the statutory route. By Law you are entitled to extend your lease for a further 90 years. In addition to the 90 years, a formal lease extension reduces ground rent to a “peppercorn” rent, meaning that no ground rent is paid
This is a more complicated, longer process and involves instructing a solicitor to start the process for you. They will check that you are entitled to request a lease extension and, if you are, they will prepare and serve a Section 42 Notice on the Freeholder.
The Freeholder then has two months to respond and indicate if they accept you are entitled to a lease extension, or not. If accepted, both you and the freeholder should then instruct surveyors who will assess what they think the premium payable should be. Negotiations will then take place regarding the premium and hopefully an agreement is reached!
If an agreement cannot be reached then you may need to make an application to the Property Tribunal to determine the premium. Further information on this process can be found below.
It is also worth noting that the premium payable to the Freeholder for granting the additional years may be higher for a formal lease extension due to the loss of future ground rent income the Landlord would receive
Process for lease extension
If you want to extend your lease via the statutory route, here is what you need to do:
- Check whether you are eligible to extend the lease on your property. You’ll need to have owned the leasehold for the property for at least two years
- Inform the Freeholder that you intend to apply for a lease extension via the statutory route
- Appoint a solicitor for your case.
- Get a full valuation for your leasehold property. The valuer will let you know how much you can expect to pay for a lease extension and provide you with evidence to support this, which will be used to negotiate with the freeholder.
- Serve your tenant’s notice to the freeholder (Section 42 Notice). This will be done by your solicitor and will contain your opening offer detailing how much you wish to pay to extend the leasehold, based on the valuation.
- Pay the deposit to the Freeholder. This will be 10% of your lease extension valuation offer or £250, depending on which is higher.
- Freeholder will accept or decline your opening offer. If they decline, they may come back with a counteroffer. If it is not right for you, your valuer can negotiate with the freeholder until a decision is reached.
If negotiations reach a stalemate, it is possible to apply to a First-tier Tribunal to reach an agreement, but this will be costly for both you and the Freeholder.
Who can extend a lease?
You are able to extend the lease on your property if you have owned it for longer than two years and it has a long lease.
A long lease does not mean how long it has left now, but when it was originally granted. The lease must have been granted for a term longer than 21 years.
Why would you extend your lease?
Any lease below 80 years is known as a short lease and can make it more difficult to sell or even re-mortgage your property as any term under this may not be acceptable to mortgage lenders. It can even affect the value of your home.
If your lease is nearing 90 years, it is important to get the ball rolling on extending your lease, as the closer it gets to the 80-year mark; the more expensive it will be to extend.
How much does it cost to extend a lease?
This will depend on a variety of factors and incorporates complex calculations based on the length of the lease, location of the property, the ground rent payable and the value of your property. The premium that is proposed must be realistic and capable of being justified should the freeholder take it to the First-tier Tribunal
You will also need to consider the valuation and solicitor’s fees for both you and the Freeholder.
What is a Section 42 Notice?
A Section 42 Notice or tenant’s notice is what triggers the start of legal proceedings for extending the lease. From the date it has been served to the Freeholder, you are liable for paying their legal fees (up to a reasonable amount).
The notice will contain information on you and your property. It will also contain details on the lease and the extension proposals, as well as the deadline for the Freeholder’s counteroffer.
It also sets the valuation date, so if any factors after you have served the notice affect the cost of extending the lease (e.g. the value of the property); they will not be taken into account.
Can a Freeholder refuse to extend a lease?
If you are legally eligible, and the formal route selected your Freeholder cannot refuse, provided the notices are served correctly and there is no breach of the Lease terms.
Therefore, if you have owned the property for over two years and it has a long lease, you are able to extend your lease.
What should I do if I have an absent Landlord?
If you cannot find the Freeholder, it is possible to find their details via the property’s title summary at the Land Registry. You will need to pay a fee to access this.
If you cannot get their details from the Land Registry, your solicitor may be able to apply to the county court for a vesting order to extend the lease. You will then be required to get the price fixed at a First-tier Tribunal.
The information contained in this article is correct at the time of publishing (11/09/2024).
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