Statutory lease extension in a nutshell
19 February 2020
Leasehold properties are described as depreciating assets because the value of a leasehold property reduces every year. If you own a leasehold property however, you may be entitled to a lease extension which would extend the term (number of years) of your lease and so increase the underlying asset value.
There are two ways that this can be achieved; statutory lease extension or voluntary lease extension. I will deal with a statutory lease extension below but if you would like to know more about a voluntary lease extension, please read our recently published article.
A statutory lease extension is governed by the Leasehold Reform, Housing and Urban Development Act 1993 (the Act) which provides a strict procedure and strict deadlines for lease extensions. A statutory lease extension allows for an additional 90 years to be added to the term of your lease and your ground rent to be reduced to a peppercorn (nil).
There are six main steps for a statutory lease extension.
Consider whether you qualify for a lease extension?
Under the Act, you must be a qualifying tenant (QT) of a flat in order to extend your lease. A QT must have owned the flat for at least two years and the original lease must have been a long lease i.e. a lease originally granted for a term of at least twenty one years.
Obtain a valuation
Once we have established that you are a QT, you should have a valuation carried out.
The valuer will inspect your flat and ascertain the price that we should enter into your Section 42 Notice (see below), known as the premium.
The valuer you appoint should specialise in leasehold enfranchisement valuation and we will provide you with recommendations based on your location.
Serve a Section 42 Notice
We will review your registered leasehold title together with your lease and draft the Section 42 Notice (the Notice) for service upon your landlord. The Notice informs your landlord that you are exercising your right, under the Act, to extend your lease. The Notice will also set out any amendments to your lease which we consider to be necessary and available under the Act (which in some circumstances can be used to modernise an older style lease).
Once the Notice has been served, the landlord can request a deposit which is calculated at 10% of the premium contained in the Notice (or £250 if 10% of the premium is less than £250).
The landlord is also entitled to have their own valuation carried out in order to determine the premium that will be inserted into their Counter Notice (see below). You will need to provide access to your flat in order for this to be done.
Receive a Section 45 Counter Notice
Under the Act, the landlord has two months to respond to the Notice with a Counter Notice. The Counter Notice will state which provisions of the Notice the landlord accepts or rejects and where any provision is rejected, a counter proposal should be made. The Counter Notice will also contain any additional provisions that the landlord wishes to include.
The Counter Notice will usually contain a premium that is greater than the premium in the Notice, often considerably so. This is not unusual and the two figures will be the starting point for each party’s valuer to begin negotiations. The premium that is eventually agreed between the parties will then become the purchase price for the new lease.
Agree terms or apply to the First Tier Tribunal
The terms of the lease (including the premium) will need to be agreed within six months from the date of the Counter Notice. We will provide detailed advice to you on what terms should/should not be agreed and your valuer will give specialist advice on the premium that should be paid.
If no agreement can be reached between the parties (on terms and/or premium) then it will be necessary to issue an application in the First Tier Tribunal (FTT) in order to protect your lease extension claim. The FTT will decide on any outstanding matters that the parties have been unable to agree.
If no protective application is made within the six month period then your claim will be deemed withdrawn and the Act prevents a further claim from being made for a period of twelve months.
Complete the new lease and register at the Land Registry
Once terms have been agreed or determined, you will have a period of four months to complete your lease extension.
Following completion, we will apply to the Land Registry to register your lease extension.
If for any reason, the landlord refuses to complete the new lease, or if you are unable to complete before the expiry of the four months after the date on which the terms have been agreed, then an application to the County Court will be necessary in order to protect the lease extension claim from being deemed withdrawn.
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 February 2020.