Lease Extension

The most important question a purchaser of a leasehold property should ask is: “How long is the Lease?” The length of a Lease is important because:

·        The shorter the Lease the less valuable is the Lease.

·        It is harder to sell a shorter Lease.

·        Mortgage Lenders do not lend on Leases less than 60-70 years.

A Lease that is less than 90 years to run is usually considered to be a short Lease. As the Lease decreases in length, the cost of Lease extension increases. It is therefore important for both the seller and the buyer to ensure that their Lease is extended before the sale or the purchase of the property.

There are two ways to extend the Lease. The simple way is for the tenant to contact the landlord directly and agree on the premium (based on an estimate obtained by a mutual surveyor). Once the premium and the length of extension are agreed, both parties will instruct their respective solicitors and will enter into a Deed of Variation or Surrender and Regrant thereby extending the lease. The Tenant’s solicitor will then apply to the Land Registry to register the new Lease.

If the parties cannot agree on the premium for the Lease extension, then under the current legislation (the 1993 Leasehold Reform Act) the tenant has the right to apply to the landlord for a Lease extension of 90 years plus the remainder of the term of the existing Lease. If the terms cannot be agreed, then the court will have to decide.

However, for the tenant to use his or her right to extend the Lease under the legislation, certain conditions have to be satisfied: –

·        The tenant must have owned the Lease for at least two years before serving the notice requesting a Lease extension.

·        The Lease must be a long Lease. A long lease is a lease granted for a term exceeding 21 years.

·        The landlord must not be a charitable housing trust providing the flat for the purposes of its charitable functions.

·        The Lease must not be a business tenancy.

The service of the initial Notice (S.42) by the Tenant will trigger the statutory procedure to acquire a new Lease. The notice should be filed by a legal expert and should contain information about the proposed premium, sufficient particulars of the existing Lease and the date by which the counter notice must be served. This date must be at least two months after the initial notice is served on all of the landlords and the third parties.

As soon as the initial notice is served, the tenant becomes liable for paying the landlord’s costs and subsequent payment of deposit to the landlord. The tenant must also allow the landlord to inspect the flat for the purpose of its valuation.

If the terms of the new Lease cannot be agreed, either the landlord or the tenant can apply to the tribunal for decision. The application can be made not less than two months after the service of the counter notice and not more than six months after the service of the counter notice.

  By Alireza Nurbakhsh