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FAQs about flat lease extensions

View profile for Melissa Casey
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When I’m meeting with a client to discuss a lease extension, I can guarantee they ask me the same three questions: Why do I have to extend my lease? What is the process? How much will it cost me? A lot of buyers assume that when they purchased a flat, it was all done and dusted and they didn’t need to worry about it further.  So when the topic of lease extensions is brought up, I often find clients unsure of how it all works.

I outline below the answers to those three most frequently asked questions.

Why should you extend your lease?

When buying a flat, you should have been made aware that you would likely need to extend your lease at some point in the future. If you have a lease of 999 years and the rent reviews do not exceed the amount dictated by the Housing Act 1988, then you may not need to extend your lease. If you have a shorter lease and wish to sell or re-mortgage, a lease extension may be suggested.

After owning your flat for two years, you have a statutory right to ask your landlord for a new lease of an additional 90 years. There are two ways to do this. You can either approach the landlord on an informal basis and agree a new lease outside of the Leasehold Reform, Housing and Urban Development Act 1993 (“the Act”), or serve notice on the landlord under the Act. If notice is served under the Act, the statutory time limits have to be adhered to.

NB Notice cannot be served if your landlord is a charitable housing trust and the letting forms part of the charity’s work.

What is the process?

If a new lease cannot be negotiated with the landlord informally, then the next step is to serve notice under Section 42 of the Act exercising your right to a new lease. You will need to instruct a solicitor and surveyor at this point. The surveyor will need to visit the property to calculate the premium of the new lease.

Once a notice has been prepared and served on your landlord, the landlord has two months to serve a counter-notice. The counter-notice must confirm whether the landlord admits your claim to a new lease and what premium they expect to receive for doing so.

There is then a period of time to negotiate the premium (if the claim has been admitted by your landlord). If, after two months from the counter-notice being served, you and your landlord are unable to agree a premium, it can be sent to tribunal for determination.

How much will it cost me?

The answers vary depending on the point at which you approach a solicitor or valuer in respect of the new lease.

If the remaining term of the lease is under 80 years, it is generally more expensive to obtain an extension. The premium of a lease is calculated based on the amount of years left of the lease and the cost of the annual ground rent (the premium should be calculated by a valuer who has knowledge of the calculation for a lease extension) – the general rule is that the less years left to run on your lease, the greater the premium will be.

Once notice is served, the Tenant is responsible for its own legal and surveyor’s fees as well as those of the landlord’s. This needs to be factored into the total cost together with the premium.

If the premium is greater than £40,000 and it is not your main residence, Stamp Duty Land Tax implications will need to be considered.

So what are the benefits of extending a lease?

  1. Not all mainstream lenders will lend on a lease that has less than 80 years left to run (please note that lending criteria changes very frequently) and buyers may be put off purchasing a property with a lease nearing or under 80 years. This is not to say that lending is not available on a property with a short lease
  2. If agreed under the Act, ground rent will be reduced to a peppercorn (a token amount).
  3. If you have a lease with a ground rent that exceeds £250 per annum in England and Wales (or £1,000 per annum in London), the provisions of the Housing Act 1988 can apply in relation to an assured tenancy and this should be avoided. If a new low rent or rent of a peppercorn can be agreed, this can curb the issue.

My advice to clients is to always try the informal approach of discussing a lease extension with your landlord in the first instance. It may be that a premium can be agreed between the parties without having to foot the cost of two valuations, etc. If your landlord is not willing to engage in conversation or an agreement cannot be reached, then you should go down the route of serving notice under the Act.

If you require any advice in respect of extending your lease, please do not hesitate to contact me.