Statutory Leasehold Extensions
The Leasehold Reform, Housing and Urban Development Act 1993 – Statutory Leasehold Extensions
Most flats in the UK are sold as leasehold, so if you own a flat you probably have a lease – a contractual agreement between the leaseholder and the landlord – or freeholder. The lease gives you conditional ownership for a set period of time.
This is a complex area of law as several issues must be considered, and important details must be adequately handled. At Langley Wellington, our experienced property team has extensive knowledge within this area of law. When working with you, we will do all we can to ensure that the process of extending your lease runs as smoothly as possible, reducing stress yet achieving your desired outcome.
Statutory Leasehold Extensions
Depending on the circumstances and provisions outlined in the Leasehold Reform, Housing and Urban Development Act 1993, you might have the statutory right to extend the lease on your flat, meaning your landlord cannot refuse the lease extension.
To qualify for a statutory lease extension, you must have owned the flat for at least two years, and the lease must be a long lease (it was granted for 21 years or more). Meeting these requirements makes you a qualifying tenant.
In doing so, your lease will be extended by a further 90 years, and your ground rent will be reduced to nil (Peppercorn Rent).
As part of your statutory lease extension, there are strict legal processes that must be followed, including:
- Give the correct notice to the current freeholder.
- Observe strict time limits in accordance with the legislation.
- Pay the landlord a premium once surveyors and valuers have worked out the appropriate premium payable.
Obtaining reliable and professional advice from an experienced solicitor when dealing with this aspect of property law is essential, as mistakes can be costly and highly time-consuming.
To speak to the knowledgeable solicitors at Langley Wellington about your statutory lease extension today, please call 01452 521286 (Gloucester) or 01242 269998 (Cheltenham). Alternatively, fill in this contact form.
As mentioned above, your landlord should be paid a premium. This will be calculated in accordance to how many years are left on the lease and considers how much Ground Rent the landlord will lose as a result.
If you have more than 80 years remaining on your lease, an additional premium is paid to your landlord, known as marriage value. With this, the amount payable increases every year the lease falls below 80 years. Therefore, commencing with the process as your lease approaches 80 years or once it has fallen below 80 years is vital.
Negotiating Lease Terms
The landlord and tenant will negotiate the lease terms once either section 25 or section 26 has been served. Some potential adjustments to the lease might include:
- Reducing the rent value based on a valuation that determines an updated market value of the property.
- Introduce a break clause to the lease to provide some flexibility to the business renting during a period of uncertainty, meaning that they could terminate the lease before the end of the full term.
- Reduce the length of the lease to allow greater future flexibility.
Depending on the nature of the landlord and tenant relationship and how well the lease negotiations are proceeding, it may be necessary to apply to court to get a decision on the terms of the new lease. Should the court order a new lease, the tenant must accept the terms of such a lease unless either the landlord and tenant agree on other terms or the tenant asks the court to ‘revoke’ the order.
Where there is court involvement, the new lease commencement date will be three to four months after the court decides on the application. Otherwise, the new lease will usually commence on the date the landlord or tenant set out in the section 25 or 26 notice.
Section 42 Notice
When informing your landlord, a Section 42 notice will be served by your solicitor. This notice informs the landlord that you are exercising your right to extend the lease under the Leasehold Reform, Housing and Urban Development Act 1993. It also sets out any amendments to the lease deemed necessary by your solicitor.
Upon serving the notice, your landlord can request a deposit (calculated at 10% of the premium contained in the notice). In addition, the landlord can conduct a valuation to determine the premium they request in their counter-notice (Section 45).
Section 45 Notice
Your landlord will have two months to respond to your Section 42 with a counter Section 45. This will state which provisions the landlord accepts and which they reject. For any rejections, a counter-proposal should be provided alongside any additional provisions they want to be included.
Typically, a Section 45 counter notice will contain a premium significantly higher than the Section 42 proposal, leaving space for negotiations to commence.
Agreeing on Lease Terms
The lease terms, including the premium payable, need to be agreed upon within six months of the date of the Section 45 notice. Your solicitor will assist you in understanding which terms you should accept and which you should reject.
In some cases, the parties may not reach an agreement. In such case, an application to a First Tier Tribunal should be made to ensure that your lease extension claim is protected. The tribunal will decide on all outstanding matters.
Finalising the Lease Extension
There are four months to complete the lease extension once terms have been agreed. Once complete, the lease extension will be applied for via the Land Registry.
If the landlord refuses to finalise the new lease or you cannot complete the process within four months, it will be necessary to file an application with the County Court to safeguard the claim from being withdrawn.
Leasehold Reform, Housing and Urban Development Act Solicitors
It is possible to extend a lease without the support of a legal professional, and it may seem appealing if you feel comfortable negotiating the lease yourself. However, this is not advisable, as failure to meet the appropriate deadlines and handle the process correctly can lead to costly repercussions.
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