If you live in a block of flats please see the Collective Enfranchisement link
Lease Extension FAQs
Since 1993 most residential flat owners have had the right to extend their leases. There have been a number of legislative changes which have on the whole extended and simplified that right. There are qualifying criteria to be met and special circumstances and exceptions. Nevertheless, the right is very valuable and very often cost effective should be considered sooner rather than later.
This is a highly technical area in which complex legal and valuation issues can arise. These FAQs are necessarily general in nature and you should not act or refrain from acting without taking specialist advice on your particular circumstances.
Q: What are the qualifying criteria?
A: The main ones are as follows and it should be noted that there are a number of exceptions and special situations:
• The flat must be held under a long lease i.e. one which was granted for a term of more than 21 years
• The flat must have been owned by (but not necessarily lived in) you for more than 2 years
Q: Why should I extend my Lease?
A: The short answer is that in many cases you will be increasing the value of your main asset. As the length of the unexpired term of the Lease decreases so does its value. If the Lease has, for example, more than 100 years to run then this decrease may be negligible but there will come a stage when it will become significant. Particular points to bear in mind are:-
• If a lease has less than 80 years unexpired when you seek to extend it then as part of the price you will have to pay what is known as a marriage value to the landlord. This could be significant. It is a key reason why you should consider extending sooner rather than later, and certainty before the unexpired term dips below 80 years.
• You may encounter difficulties if you want to sell your flat if the unexpired term is less than is regarded as mortgagable by most lenders. Different lenders have different criteria but they are generally looking for an unexpired term of at least 60 years. There are special considerations applying to flats in certain prime Central London areas.
• Even where a mortgage is not a problem, buyers of flats are often nervous about proceeding where a lease has less than 80 years to run since they consider that they will be left with the inevitable expense of dealing with the extension at a later date and they would also have to wait two years until they were able to make the application which would increase the price paid still further.
Another way of extending a Lease is for you to co-operate with other flat owners in your building to exercise the right to collective enfranchisement once the freehold has been acquired for an extended lease to be granted to the participators – see FAQ Collective Enfranchisement. However there may be circumstances where this is not possible or desirable.
Q: How much will I have to pay?
A: The valuation formulae are complex but are primarily based on ground rents and yields and the length of the unexpired term. As specified above it is very important to be aware if your lease has less than 80 years left at the date you serve your Notice on the landlord you must also pay a marriage value which can considerably increase the price. We are able to refer you to valuers specialising in this area.
Q: Do I need a valuer?
A: It would be extremely unwise not to have a formal valuation or a valuer specialising in this field. Even for negotiations you need to have an idea of how much you are likely to pay and it is necessary to specify a price in the Initial Notice. If the price is unrealistic this could lead to your Notice being declared invalid. We are able to refer you to valuers specialising in this area.
Q: How long a lease extension will I get?
A: 90 years in addition to the unexpired term of your lease.
Q: Will I still have to pay ground rent?
A: The ground rent should be reduced to a peppercorn meaning that no ground rent should be payable for the whole of the term (e.g. the 90 years plus the present unexpired term)
Q: What other costs must I pay?
A: You will also have your professional costs which will be those of your solicitors and surveyors. Estimates should be obtained. Importantly, you should note that if you do serve a notice on the your landlord then you will be liable for the reasonable costs of the landlord in connection with any investigation the landlord is required to carry out, obtaining a valuation of your flat, and negotiating and granting a new lease to you. There will also be the usual payments to third parties as with any conveyancing transaction including Stamp Duty Land Tax (depending on the price you pay), Land Registry fees and other incidental disbursements such as search fees. The ultimate cost will depend on a number of factors including the complexity of the transaction and how long it takes and importantly whether or not it is necessary for the matter to be referred to the Leasehold Valuation Tribunal.
Q: What happens if the Freeholder disputes my entitlement to claim or we cannot agree on the price?
A: In most instances claims to lease extensions or enfranchise are resolved by negotiation between the valuers for each party. In those cases where the price cannot be agreed then the matter can be referred to the Leasehold Valuation Tribunal. This can be a lengthy and expensive process. Although, as mentioned above, you are required to pay the reasonable costs of the landlord you are not liable for the costs of the landlord in respect of any proceedings before the LVT, except where the LVT determines that an application should be dismissed or one party has acted unreasonably in the proceedings.
A: If the Freeholder disputes your entitlement on a basis not within the jurisdiction of the LVT then an application to the County Court may be appropriate and we can also advise in these circumstances.