Understanding Lease Extension Rights

• Since the Leasehold Reform Act 1993, leaseholders have had the right to extend their lease by 90 years with a peppercorn ground rent (£1.00 per year or nil).
• Extending a lease can increase property value and make it more mortgage-friendly for future buyers.
• The process ensures that leaseholders are not left with a diminishing lease that becomes harder to sell or remortgage.

Eligibility Criteria for Lease Extension

• Leaseholders must meet basic eligibility requirements:
  • Must have owned the lease for at least two years (occupancy is not required).
  • Leaseholder can be an individual or a company.
  • The lease must have originally been granted for more than 21 years.
• If the freeholder is missing or unresponsive, the County Court can step in with a vesting order to facilitate the process.

Overcoming Challenges in Lease Extensions

• Missing Freeholder: If the freeholder cannot be traced, the leaseholder can apply to the County Court for a vesting order.
• Disputes with the Freeholder: Some freeholders may overcharge or delay negotiations, hoping the leaseholder will accept unfavorable terms.
• Valuation and Legal Complexity: The process involves legal and valuation steps, requiring specialist expertise to avoid errors.

The Lease Extension Valuation Process

• Lease extension valuation is more complex than standard property valuation, as it includes:
  • Current lease length – Shorter leases typically result in higher premiums.
  • Ground rent provisions – Future rental obligations must be factored into the valuation.
  • Marriage value – If the lease is below 80 years, an additional ‘marriage value’ is payable, making it more expensive.
• A proper valuation report should include:
  • Breakdown of the premium calculation
  • Methodology used
  • Comparable market transactions and case law references
• Ringley’s case studies show that leaseholders who negotiate without valuation advice often struggle to achieve a fair deal.

Serving a Section 42 Claim Notice

• To formally start the process, the leaseholder must serve a Section 42 notice stating:
  • Property details
  • Proposed premium amount (based on valuation advice)
  • Details of the leaseholder and freeholder
• The notice locks in the valuation date, preventing the freeholder from increasing the premium due to market fluctuations.
• Informal vs. Formal Negotiations:
  • Some leaseholders try to negotiate informally, but freeholders may refuse to engage without a formal notice.
  • A formal claim ensures leaseholders' rights are protected and prevents unexpected terms from being added.

Finalizing the Lease Extension Legally

• Once agreed, a Supplementary Lease and Deed of Variation is prepared to extend the lease and reduce the ground rent.
• Key legal steps include:
  • Ensuring fair lease terms – The freeholder cannot demand additional changes outside the lease extension terms.
  • Mortgage lender approval – If the property has a mortgage, the lender must consent to the lease extension.
  • Registration with HM Land Registry – The lease extension must be officially recorded, with a nominal registration fee and stamp duty compliance.
• Common Pitfalls to Avoid:
  • Accepting unfavorable terms due to a lack of professional guidance.
  • Not serving a formal claim notice, leading to higher premiums or extended negotiations.
  • Failing to register the lease extension, risking future complications in property sales or remortgaging.