How to Extend Your Lease as a Leaseholder

How to Extend Your Lease as a Leaseholder

U.K. Law allows Lease extensions if certain criteria are met, so how do you extend your lease as a Leaseholder?

Leaseholders who own flats often express an interest in applying for a lease extension. This is possible under U.K. law if the leaseholder is able to satisfy a number of criteria (the formal or statutory route), or by approaching the freeholder directly to request the negotiation of a lease extension (informal route). The formal route offers greater protection to the leaseholder in the event that the two parties fail to agree on terms and pricing. There are strict procedures and schedules that must be followed under the law.

Under the informal route, there is no obligation on the part of the freeholder to respond or to agree to extend the lease following the initial request. However, this approach is worth exploring, as it can save you a great deal of time and money. Your first step, in any case, should be to engage the services of a solicitor. 

The Leasehold Advisory Service provides an extensive list of solicitors who specialize in this area. The next step is valuing the lease, then you will need to negotiate the price. Your solicitor may approach the freeholder informally at the start. If necessary and if other options have been exhausted, it’s also possible to apply to a tribunal.

So, why extend your lease in the first place? One of the disadvantages of owning a flat or maisonette on a long lease is that its value will drop accordingly over time. The less time left on your lease, the more the property value will be diminished. 

Fortunately, U.K. law grants leaseholders (in other words, the tenant) the right to extend their lease once they have owned it for two years. However, you should be aware that you will not qualify if the landlord is a charitable housing trust (and your flat is provided as part of the charity’s operations) or if the lease in question is a business or commercial lease.

If you qualify, you are entitled to add 90 years to what remains on the existing lease at a “peppercorn rent” — which means that no ground rent is applied. So if the present lease has 60 years left, your new extended lease will be bumped up to 150 years. Under this system, the landlord is entitled to a premium (the price) for extending the lease, calculated using a formula explained in the Leasehold Reform Housing and Urban Development Act 1993.

The formal procedure is initiated by the service of a section 42 notice on the landlord (known simply as the Tenant’s Notice). This action should only take place following a careful period of preparation to make sure you are fully equipped to carry out the acquisition.

Checklist to Follow Before Beginning the Process

Before you kick-start the process, you should:

  • Check your eligibility (this includes identifying the ‘competent landlord’).
  • Identify and instruct relevant professional advisers (surveyor and solicitor).
  • Estimate the premium.
  • Make sure you have the likely necessary funds.
  • Collect all relevant information.
  • Prepare the tenant’s notice.
  • Research and prepare for all subsequent procedures.

How exactly you cover these tasks (and in what order) is a matter for you and your professional advisers, but you will need to address them all beforehand. As soon as you have served the tenant’s notice, the procedure is activated and you are expected to provide information and hit deadlines. 

If you fail to do what is required of you, as and when necessary, your application for a lease extension could fail. You will be liable for the landlord’s reasonable, professional fees from the date the notice was served, irrespective of whether the application was successful or not. The act gives more information on likely costs, along with other advice (check section 60).

You should also be aware that any application for a lease extension will be suspended if the other leaseholders issue a joint application to buy the freehold using the collective enfranchisement procedure (as described in the 1993 act). Similarly, it is not possible to apply for a lease extension if an application for collective enfranchisement is actively (already) under consideration.

Applying for a lease extension can be an arduous process. We recommend that you seek professional assistance from a solicitor and surveyor with relevant experience. To be clear, the law does not stipulate that you must have a full valuation in order to request a new lease, but we strongly recommend that you seek proper valuation advice in advance of your application. Remember that valuations are never an exact science, and it will be close to impossible for the valuer to give you a pinpoint estimate of the final settlement sum. They will usually aim to provide you with a ‘best and worst’ figure, and their suggested figure will usually incorporate knowledge of other similar properties in your locality. 

Please get in touch with Strangford Management for more details on how to assess your likely premium.