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answering your Lease Extension and Collective Enfranchisement questions Does a buy to let investor qualify for a lease extension? by The Chartered Surveyor Question I am planning to buy a flat having 90 years of unexpired lease with a Buy to Let mortgage. I am not aware of the freeholder but there is a management company that collects ground rent. I understand from your website that to qualify for lease extension i should own the flat for at least 2 years and I should be a tenant. As mentioned earlier it will be a buy to let and therefore I will be putting it on rent. Although I will be the leaseholder I will not be physically occupying it and will not be the tenant myself, does that disqualify me for an extension of the lease? Answer Originally part of the qualification criteria was that the tenant should have occupied the flat in question for at least two years in order to be eligible to claim a lease extension on statutory grounds. However, this was done away with by the Commonhold and Leasehold Reform Act 2002. So long as you have owned the flat for two years you will (with few exceptions) qualify for a statutory lease extension.
What is marriage value? by The Chartered Surveyor Question I’ve received a lease extension valuation from a surveyor that says because my lease has less than 80 years left to run I have to pay the freeholder 50% of marriage value. The report explains what marriage value is, but the language is very technical and I’m not sure I fully understand. Could you explain in simple terms what marriage value is? Answer The piece of legislation that gives you the right to claim a new lease is the Leasehold Reform, Housing and Urban Development Act 1993 (as amended). Under the Act, where the lease of the subject property has an unexpired term of less than 80 years the freeholder is entitled, as part of the premium, to receive 50% of marriage value. Marriage value is the value created by combining two assets, where the value of those assets is greater in combination than in separation. In the context of your lease extension valuation, the equation will, in simple terms, look something like this. Value of freeholder’s interest after lease extension + value of leaseholder’s interest after lease extension = Value of proposed interests. Value of freeholder’s interest before lease extension + value of leaseholder’s interest before lease extension = Value of current interests. Value of proposed interests – Value of proposed interests = Marriage value. Under the legislation the valuation is subject to a number of special statutory assumptions. For example, in assessing the freehold value of the property, the effect of improvements carried out by the lessee or his predecessors in title must be disregarded. In assessing the value of the lessee’s current lease, the lessee’s right to extend his lease or collectively purchase the freehold must be disregarded. It is a complicated area of law and valuation, so it’s important to take advice from a specialist valuer.
Can my landlord refuse to extend my lease because of an outstanding dispute? by The Chartered Surveyor Question I have approached my freeholder for a new lease. However, he has stated that he is not willing to grant a new lease at the moment, as we are in the middle of a dispute concerning some work that I did to the flat. He says I should have applied for licence to alter, and a lease extension can’t be granted until this matter is resolved. How can I move things forward? Answer Assuming you meet the basic eligibility criteria (see previous posts), you will have a statutory right to extend your lease under the Leasehold Reform, Housing and Urban Development Act 1993. This right exists regardless of any other dispute that may have occurred. If your landlord is not willing to negotiate informally then you can instruct a solicitor to serve formal notice under section 42 of the Act. If the layout of the flat has been reconfigured, or it has been extended, then a new land registry compliant lease plan will need to be registered with the Land Registry when the new extended lease is granted. If there is an outstanding dispute regarding the alterations at that stage, there may be a delay in registering the new lease. It would, therefore, be worth working towards resolving the dispute. However this need not stop you from starting the process of extending your lease, which in itself can take a number of months.
How can I deal with my absent freeholder? by The Chartered Surveyor Question I live in a house which was converted into three flats during the 1980s. None of the leaseholders have had any contact with the freeholder for some time, and we are not even sure where he lives. This has caused a number of problems with maintaining the building, which we have had to organise between ourselves for a number of years. We are considering collective enfranchisement of the freehold to overcome the issue, but I understand that this is likely to be expensive as two of us are have leases with only 50 years left to run. What are my options to resolve the issue? Answer There appear to be two distinct, albeit interlinked, issues. Firstly, that of maintaining the building, and secondly that of the needing to extend the leases. The appropriate solution will depend, at least in part, on what funds you have available and are willing to direct to solve the problem. In respect of the issue of maintenance you may be able to take control of the management of the building via a Right to Manage (RTM) order under the Commonhold and Leasehold Reform Act 2002 which can be granted by the First Tier Tribunal. In this case a RTM company formed by you and your fellow leaseholders would take responsibility for organising maintenance and repairs, either directly or via the appointment of a managing agent if you prefer. Alternatively, if you would prefer not to have any direct responsibility for management issues, an application to the Tribunal can be made for the appointment of a manager under Landlord and Tenant Act 1987. However, neither of these approaches will solve the problem of your short and diminishing lease. Alternatively, therefore, you might wish to consider acquiring the freehold. The two available options are a claim for collective enfranchisement under the Leasehold Reform, Housing and Urban Development Act 1993 or an application for an acquisition order under Part III of the Landlord and Tenant Act 1987. In each case there is compensation payable to the freeholder (or into the court where the freeholder cannot be traced) and as such, neither is likely to be cheap. However, on acquiring the freehold you would be able to deal with both the issues of the unexpired lease terms and management. The valuation procedures under the 1993 Act and the 1987 Act are quite different, and you are likely to find that, with shorter unexpired lease terms, the premium payable under the 1987 Act is significantly less. Both collective enfranchisement under the 1993 Act and RTM under the 2002 Act can be enacted as of ‘right’, whereas both solutions under the 1987 Act are only enforceable where the freeholder is in default of his obligations under the leases. As a first step, therefore, you will need sound specialist legal advice on the most appropriate solution given the specifics of your circumstances.
Will I have to pay more to extend my lease because I’ve improved my flat? by The Chartered Surveyor Question I have recently renovated my flat, and I am worried that this might mean that it is now more expensive to extend my lease. It seems rather unfair that I should lose out on account of having improved my home. Will this have much of an impact on the cost of a lease extension? Answer This is a common concern of leaseholders who have made improvements to their homes. The basis of the valuation is set out in Schedule 6 of the Leasehold Reform, Housing and Urban Development Act 1993. The legislation says that improvements made by the tenant or a predecessor in title are to be disregarded for the purpose of calculating the premium. The fact that you have recently renovated your flat will therefore not influence the premium payable to extend your lease.
How long do I have to pay for my lease extension? by The Chartered Surveyor Question I need to extend my lease. I plan to fund the extension by re-mortgaging. However, I can’t apply for the mortgage until I know how much the lease extension will cost. How do I go about this in order to make sure I can pay for the lease extension when the premium is agreed, and before the offer expires? Answer This is not an unusual situation. In the first instance, you will need to instruct a surveyor to value the premium for you, and to suggest a figure for the notice of claim which you will have your solicitor serve on the freeholder to initiate the process. Depending on the complexity of the case, it might be that your valuer provides you with a range of possible settlement figures, rather than an exact figure. Depending on the extent of the range, you might decide that you want to wait until the premium is agreed before applying for your re-mortgage, so you know exactly how much to apply for. Once the premium is agreed, the freeholder can, after one month, serve a completion notice on you, specifying a date, at least one further month in the future, for completion. So, you have at least two months from agreeing the premium to organise finance, which ought to be plenty of time to re-mortgage. You may also want to consider having an initial conversation with your bank, in order to ensure you are eligible to re-mortgage, before initiating the process and becoming liable for the associated costs.
Buying a flat on a 5 year lease by The Chartered Surveyor Question We are thinking of buying a flat with 5 years lease left (down from an original 39 years). The owner has served notice for lease extension and the other flats in the block have already extended their leases. Is there anything I should be worried about given the current short lease? I have heard hat properties with less than 5 years of lease can be refused lease extension due to claim of redevelopment, but can this be the case when other flats in this development have had their leases extended? Answer At 5 years unexpired there are a number of challenging aspects to the claim. If the freeholder intends to redevelop part or all of the property, the claim may be refused. It is unlikely, if other adjacent flats are held on longer leases, that this will be the case. However, the other leases may have a clause for early termination in the event of redevelopment. This is particularly likely if the extended leases were granted under the relevant legislation. Your solicitor ought to be able to advise you further. You should also be aware that extending a lease with only 5 years unexpired is likely to be very expensive. You will pay the freeholder a large proportion of the value of the property with a long lease. Professional fees will further add to the costs. Given its value, you may well find you have a fight on your hands in agreeing the premium. Cases such as this often end up at Tribunal for determination, which can further add to costs. You ought to commission advice from an appropriately qualified solicitor and an appropriately qualified valuer before committing to the purchase.
Are my freeholder’s proposed lease terms reasonable? by The Chartered Surveyor Question My wife’s aunt has gone into secure dementia care with care fees in excess of £4k per month. As Powers of Attorney, we are left with the need to meet the care fees by selling her leasehold flat. The current lease has 55 years to run. The landlord has quoted a premium of £12k for a new 150 year lease. In addition, the ground rent proposed for the new lease as £100 per year, rising by 10% every 2 years. Are we right in thinking that the £12k premium is high, and shouldn’t they have also quoted for a 99 or 125 year lease i.e. to give options? Also, I thought on a new lease of this type that there would have only been a ‘peppercorn’ ground rent. The £100 increasing by 10% has been deemed by our solicitor and estate agents as almost making the flat unsellable under such a lease. Would appreciate your views, especially if we are entitled to any protections under the 1993 Leasehold Act. Answer Your solicitor ought to be able to advise you as to whether your aunt is eligible to extend her lease under the Leasehold Reform, Housing and Urban Development Act 1993. There are a number of criteria which need to be met, although from what you have said I see no reason you should not act under your Power of Attorney in doing so. The Act entitles you to a 90 year extension at a peppercorn ground rent. Once served notice under the Act, the freeholder must either accept the terms of the notice, or serve counter-notice within the specified time limit stating which terms of the notice are accepted and which are disputed. The fact that the Act entitles you to a 90 year extension at a peppercorn ground rent cannot be disputed in the counter-notice, thus if the right to extend is excepted, the new lease must be offered on these terms. However, until notice is served under the Act, the freeholder is under no obligation to offer an extension under any particular terms, or indeed at all.
My daughter is considering buying a flat which has 74 years lease remaining. What risk is there if I extend after 2 years? by The Chartered Surveyor Question My daughter is considering buying a flat which has 74 years lease remaining. The flat price is 200k and already there is some interest in this property. Is there a risk in buying this property? If we do buy and after 2 years extend the lease, would the flat price increase to reflect this extended lease (assuming no increase in flat price). Answer Your question ‘is there a risk in buying this property’ is very wide reaching. It is certainly true that you will pay noticeably more if you extend in 2 years time as opposed to now. The most typical procedure is to have the current owner serve a notice of claim before you complete on the property which fixes the valuation date to that of the notice. It is of course not possible to predict property price rises but you could be looking at around a £1,000 increase for every year that you leave it.
Should I extend my lease or wait for the freeholder to offer to sell me the freehold? by The Chartered Surveyor Question I am a leaseholder of a flat within a block of 6. As of this month my lease has 83 years remaining. I am looking to sell within the next two years and am unsure whether to pay out to renew the lease or put it to market as is. The other consideration is that our freeholder has indicated to me in writing that upon the renewal of the last remaining short lease (one flat only has less than 80 years) he will offer the freehold to the leaseholders for sale. Of course there is no date for this as the elderly occupant has been there some time! I wouldn’t want to be in a situation where I renew the lease now only to have a chance to buy the freehold in 18 months’ time. I’m also conscious of the fact I may not get the opportunity at the freehold before I wish to sell and that letting the lease slip below 80 years could impact on the sale price. Your advice would be most welcome! Answer The answer here may lay in collective enfranchisement. Under the Leasehold Reform, Housing, and Urban Development Act 1993 lessees have the right to collectively purchase the freehold to their building. There are various qualifying criteria; particularly, you will need at least half of the lessees to participate. The first step will therefore be to talk to your fellow lessees. If you have enough people who are interested in participating, and you meet the other various criteria (best confirmed with your appointed surveyor or solicitor), you do not need to wait for your landlord to offer the freehold for sale. ← Previous Entries
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