Residential Lease Extensions
Most Tenants who own long leases of flats have a statutory right to extend their leases under the Leasehold Reform Housing and Urban Development Act 1993 (‘the 1993 Act’). The majority of long leases in the 1970’s and 1980’s were granted for 99 or 125 years which means that they can now have as little as 55 years remaining of the term. Lenders are unlikely to grant mortgages on leases with less than 65 years remaining of the term so for anybody owning or looking to purchase a lease of a flat initially granted at that time the statutory right within the 1993 Act is a very powerful tool, but care must be taken to ensure that all notices served pursuant to the 1993 Act are valid and the subsequent timetable is adhered too. If deadlines within the statutory timetable are missed, or any notices are invalid, then the penalties for the Tenant are severe – the Tenant’s Initial Notice is deemed to be withdrawn and the Tenant is barred from serving a replacement notice for 12 months. This can be costly if the remaining term of the lease is just over 80 years as the premium payable for the lease extension increases exponentially at 80 years and less, so the ideal time to seek to increase the lease is when there is a remaining term of more than 80 years.
There are a number of conditions which must be met before the Tenant is able to serve their initial notice:
- the lease must have originally been granted for a term of more than 21 years
- the property which is the subject of the lease must be a flat
- the Tenant must have been the Registered Proprietor of the flat at the Land Registry for 2 years or more prior to the initial notice being served. This can be the most problematic of the conditions as leases are often extended when flats are sold. The purchaser will be the party benefiting from the increased term and it will be their lender requiring the increased term and the purchaser is likely to be paying the premium, but the purchaser will not be able to meet this final condition. There is a procedure which deals with this situation; the seller Tenant serves the initial notice on the Landlord and the benefit of that initial notice is then assigned to the purchaser Tenant when they purchase the lease. The purchaser Tenant then continues with the statutory procedure initiated by the initial notice
A lease extended under the 1993 Act is extended by a term of 90 years (this is added to the remaining term of the lease) and any rent payable pursuant to the terms of the lease is reduced to a peppercorn. Other than these points the extended lease will be on the same terms as the original lease unless there are terms which need to be corrected to reflect the situation ‘on the ground’.
If a Tenant wishes to extend their lease using the statutory procedure they must be aware that in addition to the premium payable for the extended term the Tenant will also be responsible for the fees of their own solicitor and valuer and the fees of the Landlord’s solicitor and valuer, and also any intermediate Landlord’s fees.
Many leases are extended on an informal basis by agreement between the Tenant and the Landlord, in which case the terms can be as agreed between the parties. The Tenant is, again, likely to be responsible for the Landlord’s costs but these are often less than if the lease is extended pursuant to the 1993 Act. An informal extension of the lease is not risk-free for the Tenant as there is nothing binding the Landlord to complete the extended lease or adhere to the terms which have been agreed, whereas once terms are agreed in a 1993 Act lease extension the lease is extended on those terms and there is a strict timetable to be adhered to. If the Landlord does not follow the timetable then an application can be made to the Property Tribunal to ensure that the lease is extended in a timely manner. If the Landlord does not meet the timetable then the penalties which can be issued to the Landlord are much less punishing than those which can be issued against the Tenant but the Tenant will have a longer lease.
Lease Extensions pursuant to the 1993 Act are a specialist area where the margin for error is small. If you are looking to extend the lease of your flat or looking to purchase a flat which has a lease of around 80 years or less then contact Ruth Burrell to discuss the options you may have.