Lease Extensions for Flats – Why, When, What, How?
Lease extensions (also known as leasehold enfranchisement) are a commonly misunderstood enigma, but they don’t have to be!
We are often asked various questions regarding lease extensions for flats and the process itself, so we thought we would compile a list of common queries to help you if you’re looking at extending your lease, from when you should do it, to why you should do it!
Do I need to extend my lease?
Leasehold ownership means that you only own the flat for a fixed term. Leases of flats are usually granted for terms of anywhere between 99 and 999 years. The more time that passes, the lower the remainder of that term, meaning that eventually, the property could become difficult to sell or mortgage especially when the remaining term is less than around 100 years. If you wait until your lease has less than 80 years remaining on its term, you will need to pay a higher premium to your landlord to extend it.
There are then two routes to extending your lease – the informal/voluntary route where you privately negotiate the terms and premium with your landlord OR the formal statutory route governed by legislation which stipulates certain timescales and criteria.
Which route should I choose?
There are many advantages and dis-advantages to taking either route.
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Advantages – there is flexibility as to the additional years being added to the lease term; the ground rent can be negotiated; tenant’s costs are sometimes cheaper; can be quicker.
Dis-advantages – the landlord can change their mind; landlord can make any amendments to the lease without proper regulation; there is no requirement for costs to be reasonable; if it fails, the statutory route will still be needed.
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Advantages – a guaranteed 90 years is added to the term; ground rent is reduced to a ‘peppercorn’; landlord cannot make any amendments they want; strict deadlines and timeframes; if the landlord refuses, or terms cannot be agreed, the tenant can ask the court to decide.
Dis-advantages – not all tenants qualify for it, i.e., you have to have owned the property for at least two years; the tenant has to pay the landlord’s reasonable costs; the process is sometimes complicated and if a deadline is missed, the claim may lapse and the tenant may have to wait a year before trying again; it may cost more and take longer.
Am I legally entitled to extend my lease?
Under the statutory route, you do not automatically have the right to ask for the extension of your lease. In basic terms, the property must be a flat with 21 years or more lease term; you must have owned the flat for a minimum of two years before notice can be serviced – note here that this is from the date you were registered at Land Registry as the owner not the date you purchased the flat; and the flat is a flat under the definition of the relevant legislation.
What is the premium I will need to pay my landlord?
This varies from lease to lease and flat to flat. Under the informal route, the premium is privately negotiated. Whilst the statutory formula within the formal legislation can be used as a guide, there is nothing forcing the parties to use it. However, with the formal/statutory route, the premium is and will be calculated using this formula, being enforced by a court if the parties do not agree.
The premium is normally ascertained using a valuer who deals with these types of transaction. Normally, both the landlord and the tenant obtain their own valuations and will include their valuation figures in their respective notices. Where the lease term has dropped below 80 years, the calculation becomes more complicated.
What does a lease extension do?
Whilst it is called a ‘lease extension’ the lease doesn’t actually get extended, instead, the current lease is surrendered, and a new lease is granted for the unexpired term plus the 90 years. This is also known as a ‘surrender and re-grant’. The ground rent is reduced to a ‘peppercorn’ and the premium is paid to the landlord as consideration (like a purchase price). Because the transaction involves both a premium and a new lease, stamp duty may be payable depending on your circumstances.
With ever-changing legislation, there may be external factors that come into play when deciding whether or not to extend your lease, for example the Building Safety Act. We of course cannot cover every eventuality in this short article so get in touch for more information. Here at Emmtoria Law, we ensure that your interests are protected in the best possible way whilst achieving a timely and efficient outcome to your matter. Utilising the latest in legal-tech, we try to expedite time-heavy processes and keep you updated every step of the way.
If you are interested in discussing our Lease Extension/Enfranchisement services further, give us a call on 0330 056 5820 or enquire by email at hello@emmtoria.co.uk