Statutory Lease Extensions
Why should a leaseholder consider extending the lease term of their flat?
A property held on a long lease is a wasting asset because a leaseholder only owns the property for a period of years. As the term of year’s decrease, the value of the leasehold property decreases. Along with that, the amount you will pay to the freeholder to extend the lease will increase.
It is well known that purchasers of leasehold property are increasingly expecting and wanting longer leases when buying. An unexpired term of under 80 years is considered by many to be unacceptable. This will make a property difficult to sell unless the value is discounted significantly. A lease extension may well be required simply to be able to sell.
Mortgage lenders have specific criteria when lending funds secured on leasehold property. Many will simply not lend at all once an unexpired lease term drops below a certain length. Many lenders will not consider property with an unexpired term of less than 70 years suitable security. As well as this being important when selling, it is also relevant if you are wanting to remortgage a property.
Many leaseholders are unaware that they have any legal rights when wanting to extend leases. They therefore approach their freeholder and simply agree to the terms on offer, which typically extends a lease only back to 99 years with a higher escalating ground rent and with a sizeable premium to be paid. What is often not known is that, leaseholders who have owned a leasehold property for over 2 years have a legal right to a statutory lease extension under the terms of the 1993 Leasehold Reform Housing & Urban Development Act.
Why is a statutory lease extension beneficial?
A statutory lease extension gives a leaseholder a 90 year extension added to their existing unexpired lease term (ie if your lease has 70 years remaining your statutory lease extension will give you a new term of 160 years). It also resets the ground rent to a peppercorn per year (zero) for the duration of the lease. This ground rent cannot be increased or reviewed during the whole of the new lease term. The premium paid to the freeholder is determined by Schedule 13 of the 1993 Act. It should also be noted that if you extend your lease before the unexpired term drops below 80 years the 1993 Act does not allow any marriage value to be paid as part of the premium which further reduces the amount payable to the freeholder.
Are you eligible to obtain a statutory lease extension?
Any leaseholder who has owned a leasehold residential property for more than 2 years which was originally sold for a leasehold term longer than 21 years is eligible to obtain a Statutory Lease Extension. If you are buying, you can avoid the 2 year ownership rule if your seller has owned the property for more than 2 years and serves the initial notice on the freeholder and then assigns the benefit of the notice to you.
How you claim a statutory lease extension?
Firstly a valuation is necessary to determine how much to offer the freeholder and so you are aware of your financial liability. Once this has been completed, your solicitor serves a formal S42 Notice on the freeholder to claim your lease extension.
The freeholder will undoubtedly then serve a counter notice within 2 months (Legal Maximum time allowed) which typically will request a higher premium payment. Once this is received there is a maximum 6 month negotiation period however after 2 months either party can refer the matter to the Leasehold Valuation Tribunal (LVT) for determination. It should be noted that the vast majority of cases are settled without the need for a formal hearing.
A leaseholder will also have to pay the freeholders valuation fee and legal fees relating to receiving your notice, serving the counter notice and preparing and completing the new lease. Other costs such as the costs of negotiation, any costs relating to preparing for and appearing at a LVT or administration costs cannot be recovered. If these costs cannot be agreed, the LVT can be asked determine the amount of the freeholder’s costs even if the premium has been agreed.
How we can help you
We specialise in undertaking the necessary lease extension premium valuations, the subsequent negotiations with the freeholder’s valuer and in the occasional case where agreement cannot be reached the preparation for and representation at a Leasehold Valuation Tribunal. We offer fee options including competitive fixed fees so you are fully aware of your costs. We offer significant discounts when acting for a number of leaseholders in the same block at the same time. We can also introduce you to specialist solicitors who also offer fixed fee options.