Episode two: Extending your lease
In the previous article, I examined the right of the flat owners acting collectively to compel the landlord to sell them the freehold in the property. In this article, I look at the right of individual flat owners to compel the landlord to extend their lease.
Extending your lease by 90 years
Many of the concepts that apply to the right to buy also apply if you want to extend your lease.
The right is to extend your lease by 90 years from the date on which it would otherwise have expired – in other words you get the remaining term plus 90 years. In fact, for technical reasons, you get an immediate new lease for the full longer period rather than a second lease that starts when your existing lease ends.
You will have to pay a lump sum for the new lease but whatever the old lease rent may have been, no money rent will be payable under the new lease. You may come across the expression “peppercorn rent” which means that the landlord can collect no more by way of rent each year than one peppercorn, in other words a purely nominal amount which is never collected in practice. Other nominal rents are sometimes used, the most charming I have heard of being “a red rose on Lady Day”. The nominal rent is not to be confused with other money payments such as service charges and insurance premium payments and these will remain payable under the new lease.
If you start a claim for a new lease and then the flat owners begin a claim to buy the freehold, your claim will be suspended until the outcome of the claim for the freehold.
There are fewer preconditions than in the case of freehold purchase.
- You must have a lease that was originally granted for more than 21 years but certain other less common types of lease also may qualify.
- You must have owned the flat for two years or more – this means 2 years from when you were registered at the Land Registry as owner, which may be a while after you completed the purchase and moved in.
- You cannot extend the lease if your landlord is the Crown (but the Crown may grant a lease extension anyway) the National Trust or a charitable housing trust providing the flat for its charitable functions or if the flat is within the precinct of a cathedral.
- If the lease has less than 5 years left, the landlord can apply to the court for an order preventing you from claiming a new lease if the landlord proves that it wants to carry out major works to the flat when the lease ends and needs vacant possession to do so.
There is no disqualification if you own more than one flat and you can extend the lease for each flat.
As with the right to buy the freehold, the flat owner must pay a lump sum for the new lease and the price is made up of more than one element as at the date when the flat owner lodged the claim as follows:-
- The amount by which the open market value of the landlord’s interest in the flat is reduced by the lease extension. The longer the remaining term on the lease, the lower this amount will be.
- Marriage value – the landlord will get half the marriage value if the remaining lease period is 80 years or less, and no marriage value if the period is over 80 years.
- Compensation for severance – it is possible that the value of other property owned by the landlord will be reduced if the flat owner gets an extended lease and in that case the price will include an element of compensation for that loss in value.
Again, this is not an area for the uninitiated and there really is no alternative to using a valuer who specialises in this work.
A deposit of 10% of the purchase price proffered by the flat owner or, if greater £250, must be paid to the landlord’s lawyer within 14 days after the landlord requires the flat owner to do so.
On completion of the new lease and in addition to the price, you must also pay the reasonable professional fees incurred by the landlord. These can be substantial. You must also pay the landlord’s professional fees if you withdraw or if your claim is unsuccessful.
There are detailed, complex requirements for the process to be started by a notice from the flat owner to the landlord and then continued by counter notices. The flat owner’s initial notice must state the price the flat owner is willing to pay for the new lease and the landlord can suggest another figure by counter notice. If they cannot agree, the Leasehold Valuation Tribunal will decide.
Again, this is an area where you need to retain surveyors and lawyers who specialise in this work as there are many opportunities for fatal mistakes.
There is no limit on the number of times a flat owner can request a lease extension and so if the worst happens you can start again. You will have to pay the landlord’s wasted fees and the price will be assessed on the basis of a shorter remaining lease which may increase the amount you have to pay.
Assignment of claim
Once you have given notice, you can sell the flat with the benefit of the claim and the new owner will then take over where you left off.