With leases continuing to get shorter, for example some areas of London leases of 40-60 years are common, leaseholders should also be aware of their legal right to extend their lease. Since 1993 when the right to extend your lease was passed, legislation has been changing to benefit the leaseholder. For example qualification criteria have been relaxed and it is no longer necessary to live in the flat or own the lease for 2 years first. The prospect of extending your lease may seen like a daunting task but it can be achieved by serving a formal legal notice on the freeholder and intermediate landlords. Your statutory right is an additional 90 years to add to what ever unexpired term you currently hold with ground rent reduced to a peppercorn.
To get the ball rolling make sure you have all the essential paperwork. The valuer will require a copy of the lease to calculate your future ground rent commitments. A copy of the lease is also needed to confirm title searches prior to serving a Section 42 'Notice to claim your rights'. It is also important to have at the ready your last ground rent demand to clarify who you are currently paying ground rent to. In situations where your Freeholder has long disappeared, there is a procedure called a 'Vesting Order' which ensures that you can still get your lease extended.
The next stage is to serve Notice but you may opt to open informal discussions with your landlord first. Opening informal discussions with your landlord won't put you at a disadvantage and they can only say no. Some landlords will simply refuse to enter any discussions without a formal notice as this protects their position as to any costs they may incur in getting advice on whether your offer is reasonable. Especially, if the freeholder lives in the block it could be advantageous to both parties to have a chat first.
Some landlords need educating that it is a leaseholders right to claim a statutory lease extension. If you are proceeding informally you will need to ensure that the Freeholder is quite clear that it is your Section 42 rights you are negotiating about. A claim notice fixes the valuation date (at date of notice) and establishes that you are claiming your Section 42 rights.
To serve your notice the lessee needs to state details of their lease and the premium that they would like to pay for the lease extension. To know what premium you should quote on your notice requires specialist valuation advice as your notice could be invalid if you do not pass certain legal tests, one of which is satisfied by you having taken valuation advice. A lease extension valuation requires more elements than a typical mortgage valuation, in fact there are 13 input factors. A good valuation report should include calculations to show you how the premium is made up, an explanation of the methodology and comparable market transactions or case law evidence on which your valuer has relied.
Be careful when employing the services of a valuer as there are many unqualified surveyors dabbling in this type of work. By doing your homework and selecting a valuer with the appropriate expertise you will get the best return on your expenditure. It is advisable to check the experience, qualifications and competency of a valuer before employing their services.
The Ringley Group which carries out around 300 such cases a year suggests that about half of premiums are agreed informally, and of the half negotiated after service of a claim notice only about five percent end up at the Leasehold Valuation Tribunal. There are 13 valuation variables to be agreed and three components of the valuation to be established. Some variables are fact, for example, the ground rent, others are based on property and financial market evidence or caselaw such as the long and short lease values and yield rates.
A 'Supplemental Lease and Deed of Variation' is the legal instrument that extends your lease. The lessee's rights are to vary two terms of the lease, the ground rent and the term. The Freeholder cannot force you to agree to changes to other clauses, albeit many try, and your old lease does not get ripped up. It is sometimes here that leaseholders who went down the informal route become unstuck when the Freeholder suggests that whilst the premium is agreed, they do not agree to the ground rent being reduced to £1.00/peppercorn.
If you have a mortgage it is necessary to obtain your mortgagees consent to the lease extension as they too have an interest in your leasehold title. This is just a formality, as we cannot imagine a situation where a mortgage company would refuse to approve a deed that increases the value of their security.
The Supplemental Lease and Deed of Variation is a document that is usually executed by deed. It needs to be registered at HM Land Registry to become part of your properties title. There is a nominal registration fee and stamp duty land tax form to be filled in.
If you are contemplating buying a property with a short lease its possible to get the seller to serve a Section 42 Notice claiming a statutory lease extension, before you exchange contracts. Under Section 56 of the 1993 Act the buyer can then take these rights forward and extend the lease themselves.
Author : Mary-Anne Bowring
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