An analysis of the statutory and voluntary routes from a landlord’s perspective.
If you own the freehold of a block of flats which are let on long leases, your tenants may be entitled to claim a statutory lease extension from you. Alternatively, they may contact you and request a voluntary lease extension. More details about the process for each of these can be found in our previous articles: Statutory lease extension in a nutshell and Voluntary lease extension.
In this article, I provide a brief outline of the main benefits and disadvantages for each type of lease extension from the landlord’s perspective. This article does not include considering an intermediate landlord or if you, as the landlord, hold a leasehold interest only.
The process for extending the lease of a house is governed by different legislation.
If you have any queries regarding an intermediate landlord or a leasehold house, please do not hesitate to contact the Enfranchisement Team.
Statutory lease extension
A statutory lease extension is governed by the Leasehold Reform, Housing and Urban Development Act 1993 (Act) which provides a framework within which the extended lease is negotiated and granted.
- The tenant is limited as to the amendments that can be made to the lease.
- The tenant is obliged to pay for your reasonable legal costs and your surveyor’s fees.
- If the tenant withdraws from the process, they will still be liable for your reasonable costs.
- The Act sets out a strict timeframe and there are repercussions for tenants who fail to adhere to the deadlines. It is possible that the tenant may miss one of these and if this happens at a vital point, the tenant will lose his or her ability to claim a statutory lease extension for a period of 12 months, by which time the price the tenant has to pay for the lease extension may have increased.
- The Act requires that the lease is extended by 90 years and that the ground rent is reduced to a peppercorn – there is no room for negotiation although you will be compensated by way of a premium which is paid for the lease extension.
- You are limited as to what amendments you can make to the lease as they should fall within the strict provisions of the Act.
- You cannot withdraw from the process once the tenant has served a claim notice.
- There are repercussions for landlords if they fail to adhere to the strict timeframes of the Act. If you fail to adhere to a deadline or you serve an invalid counter notice, the tenant is entitled to ask the Tribunal or the Court to determine the terms of the lease extension (whether they apply to the Tribunal or the Court will depend on the status of the transaction). If you fail to serve a counter notice on time or your counter notice is invalid, the tenant is entitled to a lease extension on the terms set out in their claim notice (including the premium).
- If a tenant makes an application to the Tribunal or Court it is highly unlikely that you will be able to recover your costs against the tenant.
Voluntary lease extension
A tenant can ask you to extend their lease voluntarily; this may be a better option for you as it provides you with greater flexibility over a statutory lease extension.
- This route is not governed by the Act so there are no strict timeframes.
- You can offer as many or as few additional years as you wish – the tenant is not guaranteed an additional 90 years.
- You can offer as low or as high a ground rent as you wish – the tenant is not guaranteed the peppercorn ground rent.
- The offer that you make to the tenant can be given on a “take it or leave it basis”, giving the tenant very little room for negotiation.
- You can make any amendments to the lease without having to fall within the strict provisions of the Act.
- You can still require that the leaseholder pay your costs.
- You can seek to charge whatever you want to for the lease extension although you should be guided by a surveyor (at the tenant’s cost) as to what is reasonable.
- On the whole, voluntary lease extensions proceed more quickly.
- The tenant can ask you for any number of additional years and any amount of ground rent.
- The tenant can request any other amendments to the lease that they wish.
- If the tenant is not happy with the terms proposed, they can still opt to make a statutory lease extension claim.
It is very important to discuss any proposed amendments with a solicitor before agreeing to them formally.
If you have received a claim notice or would like to discuss a tenant’s request to extend their lease, please contact a member of the Enfranchisement Team and we will be happy to assist.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at July 2020.