If you own a residential flat then you will most likely own this under a long lease. The lease will state how much rent you should pay, the extent of the property you own and other terms such as who should put the buildings insurance in place. One of the most important terms of a lease is how many years there are left until the lease ends, this is referred to as the “term”. As the years left on the term reduce, the tenant should consider asking their Landlord for a lease extension, provided they can meet the relevant criteria. It is rarely a good idea to wait until you sell your flat!
It is generally accepted that once a lease has less than 70 - 80 years left then it is harder to sell and it can have the effect of reducing the overall value of your property. Most banks or building societies will not lend money against a lease which has less than 70 years left to run which means the only potential buyers are cash buyers. This is why it is so important to consider whether a lease extension is appropriate at an early stage.
The tenant can try to agree a lease extension directly with their Landlord. This may be cheaper and faster in the short term. However, an unscrupulous landlord may only agree to a short term extension or increase the ground rent. Alternatively, a tenant can go down the formal route under the Leasehold Reform Housing and Urban Development Act 1993 (the 1993 Act). Under the 1993 Act, qualifying tenants have the right to be granted a lease extension of 90 years on top of their existing term, and for their rent to be reduced to a peppercorn (nothing). In order to qualify under the 1993 Act, the original lease granted must be for at least 21 years and you must have owned your property for at least 2 years.
Extending a lease can be a long and drawn out process and it comes at a cost. The Landlord is likely to require the tenant to pay a premium which is usually calculated by a surveyor who specialises in lease extensions. Once the lease has less than 80 years left on the term, the amount of the premium will be higher. In addition, if you go down the formal route, you will be liable for the landlord’s reasonable legal and surveyor’s fees from the date you serve the initial notice, whether or not your application is successful.
A legal process must be followed in order to ensure that the Landlord will grant the lease extension under the 1993 Act, and before making the request, the tenant should ensure that they are legally entitled to do so. Burnetts would always recommend taking legal advice and we regularly act for either tenants requesting the lease extension, or landlords (particularly resident owned management companies) granting the lease extensions. You can rely on us to guide you through the process, avoiding any pitfalls along the way.
Sometimes the Landlord under a lease of a flat is a management company or residents association which is run by all or some of the flat owners. If this is the case, then it is worth holding a meeting of the residents’ association and deciding whether the association as Landlord should grant a lease extension for all leases at the same time. Where all of the leasehold owners, or the Landlord, instructs us on a lease extension in a block then we can offer significant discounts on our usual legal fees, depending on the quantity of lease extensions.
If you have any queries, please contact Christina Foster on 01768 807055.