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You’ll probably be reading this either because (i) you want to extend your residential long leasehold property; (ii) you’re a landlord/freehold owner and the leasehold owner has asked you for a lease extension; or (iii) you’ve simply got a passion for leasehold law (like me!).
Regardless, this article will give you a steer on the main things to consider and will set out a chronology of the process.
You can either extend your lease via a statutory route or an informal route. This article covers the statutory route.
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Do you qualify for a lease extension?
In summary, you need to have a long lease of a flat which was originally granted for more than 21 years. You also need to have been the registered owner at the Land Registry of that leasehold property for more than two years at the date of making a claim for a lease extension. Most flats will qualify unless the landlord/freehold owner is the National Trust or the Crown.
If the original leasehold owner has died, in some circumstances it is possible for the executors of their estate to extend the lease, relying on the previous two years’ occupation of the deceased leaseholder. This is not always straightforward so please contact us if you need assistance with this.
NB: The two year ownership requirement will be removed under the Leasehold and Freehold Reform Act 2024 (“LAFRA”) which became law on 24 May 2024, but right now none of the provisions are in force and we don’t have a timescale for when they might come into force. This means you still need to have been the registered owner for two years before making the extension claim.
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I think I qualify, what do I need to do next?
It’s always best to check with a lawyer to make sure you definitely do qualify, but once you’ve done that, you will need to go and get a valuation for the lease extension. This is the price you can expect to pay for having an additional 90 years added to the term of your current lease (the extension). 90 years is the current maximum term that can be added but under LAFRA, this will increase to 990 years. Valuations are provided by leasehold extension valuers. A valuer will need a copy of your registered title and the freeholder’s title, and they will need to visit your property to undertake the valuation.
Again, the way valuation is calculated is being changed by LAFRA to become more leasehold-friendly, meaning that a leaseholder may pay less for a longer extension once the Act is in force. However, if you want to wait for LAFRA to be in force, you will need to balance the potential reduction in premium against the fact that your lease may then have fewer years left on it – meaning an extension could cost more. This is a balancing act and it would be best to speak to your valuer about it!
NB: 80 years is a bit of a ‘tipping point’ in valuation terms. Ideally, you would want to extend your lease before you have less than 80 years left on it as it can be more expensive after this point.
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I have the valuation, what now?
If you’re the leaseholder, you will then ask your lawyer to serve the “section 42 Notice”. This refers to section 42 of the Leasehold Reform, Housing and Urban Development Act 1993 (“LHRUDA”). This is the initial notice requesting a lease extension which is served on the freehold owner (and any other landlords) of the property. It contains the premium you are prepared to pay and any other changes to current terms of the existing lease.
It is possible to negotiate the reasonable modernisation of terms in a lease extension. It is worth asking your solicitor to have a look through your current lease and advise on any terms which are outdated. You can then set out those terms that you would like to update in the section 42 notice.
If you cannot reach agreement with the other party on the new terms, then the law imposes some restrictions on what can and cannot be updated. For example, you are able to remedy defects in a current lease and you can remove any terms which are unfair (due to new legislation). However, you do not have carte blanche to re-draft an entirely new lease which bears little resemblance to the original.
Once the section 42 notice is served, you are responsible for the freehold owner’s fees in responding to and dealing with the lease extension claim. Another change under LAFRA, is that in most circumstances, the freeholder will be required to meet their own costs rather than the leaseholder being responsible for them.
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What happens after serving the section 42 notice?
The freehold owner has 2 months to respond with a counter-notice, known as a section 45 notice (section 45 LHRUDA). The counter-notice requires the freehold owner to say whether they accept the leaseholder’s claim to an extension, the premium that they require and any terms that the freeholder is prepared to accept.
Inevitably the freehold owner’s premium will be higher than the leasehold owner’s premium. Both parties’ valuers will then discuss the two figures and a compromise somewhere in the middle is usually agreed upon. The freehold owner is responsible for their valuer’s costs of negotiating the premium.
Your solicitor should register a Unilateral Notice against the freehold owner’s land registry title, which sets out that a section 42 notice has been served. This protects the leaseholder’s claim to an extension in the event that the freeholder sells their interest.
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What happens after I’ve received the freehold owner’s section 45 notice?
If the freeholder has accepted that you are entitled to a new lease, which should be the case as long as you satisfy the criteria for claiming a lease extension, then it is then up to the parties (via their solicitors) to agree the terms and premium payable for the new lease within 6 months of the date of the section 45 notice.
If terms cannot be agreed within six months, then the leasehold owner must make an application to the Tribunal to protect its right to an extension. If this is not done, then the lease extension claim is deemed to be withdrawn.
Once the terms and the premium are agreed, then the new lease can be completed and registered with the Land Registry.
Final Thoughts
This article provides a general overview of the lease extension process. If you need any assistance with your lease extension (as leaseholder or freehold owner) then please don’t hesitate to get in contact at lydia.robinson@michelmores.com.
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