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BCIS
Extending residential leases 27 Oct 2015
The process and benefits of extending long leases on flats and houses in England and Wales explained.
Eligibility A leaseholder with an unexpired term of 21 years or more on the original lease and who has owned the property for two years or more can apply for an extension under the Leasehold Reform, Housing and Urban Development Act 1993. The owner does not have to occupy the property but must be the registered owner..
Period of extension A successful application for flats adds 90 years to the unexpired term of the lease and for leasehold houses 50 years. Benefits of extending include adding extra value to the property and not having to pay ground rent for the duration of the extended lease.
Why extend a lease? As a lease gets shorter, the value of the lease decreases and becomes more expensive to extend the lease. It can also be difficult to sell a property with a short lease as many lenders will not grant mortgages on leases of 70 years or less. It is worth seeking professional advice on whether to apply for a lease extension before putting a property up for sale if you have a short unexpired lease term left.
How much will it cost? The Lease Advisory Service Lease Extension Calculator provides a rough guide to costs depending upon length of lease and legal costs. A leaseholder applying under the 1993 Act is liable to pay the landlord’s legal and valuation costs. Leases with 80 years or less unexpired terms incur additional costs as marriage value is payable. Marriage value is the increase in value of a property arising from the grant of a new lease and is included in the calculation of the premium. Before embarking on applying for extension you should have a financial plan in place as costs can increase and the applicant is liable for a freeholder’s reasonable costs.
Seeking professional advice Leaseholders should seek professional advice from a chartered surveyor specialising in leasehold valuations and a solicitor. Our Find a Surveyor service will help you find a chartered surveyor in your area and the Law Society with finding a solicitor. The Leasehold Advisory Service (LEASE) has an online directory of leasehold extension practitioners.
Procedure A Section 42 notice under the 1993 Act is served on the freeholder outlining intention to extend the lease specifying a date for response within two months of the date of the serving of the notice. If the landlord does not respond within the two months or responds late, the leaseholder can apply to the County Court for a lease extension on terms set out in notice within six months from the date the freeholder is supposed to serve the counter-notice. Correct wording of the notices, dates for response are critical including ensuring that notice is served to the freeholder’s correct address to avoid delays and additional costs to the leaseholder.
What happens if agreement on extension cannot be reached? If a party cannot agree on premium, application can be made to the First-Tier Tribunal (Lands Chamber) for determination. Professional advises working on behalf of both parties would try and negotiate a price first to avoid delays and costs.
Missing landlords Leaseholders who are unable to trace their freeholders (usually more of an issue with leasehold houses) can apply to the County Court for an order to dispense with the service of the initial notice provided they can demonstrate they have made all reasonable attempts to trace the landlord. You can apply to the Land Registry to establish who the registered freeholder is by obtaining a copy of the freehold title register.
Delays in processing leasehold extension If a new lease has not been finalised within two months of agreement of a First-Tier Tribunal determination either party can apply to the County Court for an order to deal with the conclusion of the lease extension.
Applications by third parties where leaseholder lacks capacity to sign The Leasehold Reform (Amendment) Act 2014 amends the 1993 Act to allow solicitors and family and friends who hold power of attorney for eligible leaseholders who do not have the capacity to sign the notices which are served on the freeholder.
Applications outside the 1993 Act Leaseholders can negotiate informally with freeholders but would not have the protection of the Section 42 notice process and cannot refer the matter to the First-Tier Tribunal for determination.
Further resources Leasehold Advisory Service (LEASE)