Do you qualify to buy a 90 year extension?
As a preliminary, you will need to check whether you are a 'qualifying tenant' for the purposes of the Leasehold Reform, Housing and Urban Development Act 1993 (the 'Act').
In order to qualify, you must be a flatowner holding a lease granted for a term of over 21 years.
You will also need to have owned the flat for at least 2 years.
We will be able to review your lease and the title to the flat to confirm whether the qualification criteria laid down by the Act are satisfied.
There are circumstances in which a landlord can resist a tenant's claim. This will be the case where your lease is due to expire within 5 years commencing on the date of your notice claiming the extended lease and the landlord intends to redevelop the building in which the flat is contained in a manner which necessitates regaining vacant possession of the flat.
Having established that you qualify for a 90 year lease extension, you will need to make a preliminary assessment of the premium payable. At this stage, some valuation advice from a specialist valuer will generally be essential.
The other associated costs of proceeding should be borne in mind. In addition to your valuer's fees, there will be legal costs to bear – not only yours but also any incurred by the landlord and the costs incurred by anyone with an intermediate leasehold interest. You will also be responsible for valuers' fees incurred in relation to the valuation exercise by the landlord(s). These costs will be very difficult to estimate at the outset, and so only a broad indication of their likely level can be given.
We will check the ownership structure of the building in which your flat is situated. If necessary, we can serve a notice on your immediate landlord or the person to whom you pay rent (eg the managing agents) requiring the recipient to give comprehensive information in relation to the various property interests in the building. The recipient of the notice must respond within 28 days. Any response will also include details of whether the recipient of the notice has received an application from other leaseholders in the building to collectively acquire the freehold. Although you would probably already know of any such application, this is important because any other dealings by the landlord (including the grant of lease extensions) are 'frozen' for the duration of an application made by the leaseholders in the building to collectively acquire the freehold.
Before you claim your right to an extended lease, you should seek valuation advice from a specialist valuer. The Act's valuation provisions are very technical but, in broad terms, the price payable by a leaseholder will comprise the following elements:
- the capitalised value of the landlord's right to receive ground rent;
- the diminution in value of the landlord's interest in the flat (ie the devaluation of the landlord's reversion);
- any compensation payable to the landlord for any loss which the landlord may suffer (eg where there is a diminution in the value of the landlord's interest in property other than the flat as a result of the grant of the new lease); and
- 50% of the 'marriage value' (ie the difference between (i) the combined value of the existing lease and the landlord's interest and (ii) the value of the flat once that lease has been extended).
The last of these elements will not be payable if your lease has more than 80 years left to run at the date you serve your notice of claim. If you have a lease with only a little over 80 years left to run, you should consider claiming an extended lease quickly.
Where there are intermediate leasehold interests to be bought out, the price for these will also have to be paid and will be calculated by reference to the number of years the lease in question has to run, any profit rent (the difference between the rent received and that paid under the lease) and an assumed yield. Compensation may also be payable to the intermediate landlord as set out above.
Once we have established that you are in a position to proceed, it is worth considering a direct approach to the landlord (and where appropriate any intermediate landlord) or the managing agents to see whether the landlord is prepared to co-operate voluntarily. If they are, this will help to keep matters straightforward and costs as low as possible. You will then need your valuer's advice before making an offer to open negotiations with the landlord as to the price you should pay for the lease extension. Once the price has been agreed, solicitors can deal with the legal aspects of the acquisition.
If the landlord (or any intermediate landlord) is not prepared to co-operate, you will need to follow the procedure laid down by the Act and set out here.
Whether or not a preliminary notice of enquiry is served, the claim procedure will be initiated by the service of a tenant's Notice by which you claim to exercise your right to acquire an extended lease of your flat. In essence, this Notice sets out the basis of your claim giving details of your interest in the flat and the (realistic) price which you propose to pay for the extended lease. The price to be included in the Notice should be agreed with your valuer.
Your Notice must specify the date by which the landlord must respond, which must be not less than 2 months after the date of your Notice.
We will register a notice or land charge at the Land Registry (as appropriate) to protect your rights as against any purchaser of the landlord's interest.
At any time after your Notice of claim has been served, the landlord may:-
- require payment of a deposit of 10 per cent of the premium price proposed in your Notice (subject to a £250 minimum)
- require you to 'deduce title' to your Lease within 21 days. We will already have your title deeds and so will be able to comply
- exercise rights of access to your flat (to value it) upon not less than 3 days' notice.
The landlord must serve a Counter-notice before the date specified in your Notice of claim. In the Counter-notice the landlord will either admit or contest your claim to a new, extended lease and, if admitting your claim, may propose terms for the new, extended lease. If contested, any dispute is ultimately referable to the County Court within 2 months of the date of service of the Counter-notice.
Agreeing the price and terms of the lease
Once your right to bring your claim is admitted by the service of a Counter-notice admitting the claim, your valuer and the landlord's valuer negotiate the price to be paid by you for the new, extended lease. In most cases, the terms of the new lease are being agreed at the same time with the landlord's solicitors.
If the price – or (in some cases) the terms of the lease – cannot be agreed, the dispute may be referred to the First Tier Tribunal ('FTT') in which case you will incur significant further costs.
Fortunately, the vast majority of claims are settled without the need to go to the FTT. After the first 2 months of this negotiation period have elapsed (but in any event before 6 months have elapsed) either you or the landlord can apply to the FTT to determine the matter in question. In some cases landlords will do this as a matter of course, but if they do not, we shall do so on your behalf, sometimes only to create a little more time to negotiate the terms of acquisition.
Once all the terms of the purchase have been agreed (or determined by the FTT), statutory regulations provide for the new lease to be prepared by the landlord's solicitors (within 14 days of that agreement). The new lease will be on substantially the same terms as your existing lease, except that it will be for a term expiring 90 years after the expiry date of your existing lease and the rent will be a 'peppercorn' ie nil.
In practice however, the terms of the lease are generally agreed while the valuation aspects are being debated.
Statutory regulations provide that following agreement of the draft lease, either you or the landlord may serve a notice requiring completion within 21 days. However, in practice, there is generally some flexibility over completion which will often take place within a month or so of the price and terms being agreed. The lease must be completed within two months of the terms of acquisition being agreed though and so it is imperative that you have the funds for the acquisition of the new lease in place before, or very shortly after, reaching agreement on the terms of acquisition.
On completion, the premium is paid and the executed original lease and counterpart lease are exchanged.
If applicable, Stamp Duty Land Tax at the appropriate rate is paid within 14 days of completion:
We then make an application to the Land Registry for the registration of the new lease in substitution for the 'old' lease (and for the cancellation of the 'notice'/'land charge' registered against the landlord's interest to protect your claim). If you have an existing mortgage, it will automatically be switched from the 'old' lease to the new, extended lease.
You may unilaterally withdraw at any time, if for example you are unhappy with the level of premium. This is very unusual because your valuer should be able to give you a fair idea of the premium you are likely to have to pay at the outset. The effects of such a withdrawal are twofold:
- you are prevented from bringing another claim for an extended lease for a period of at least 12 months (but this does not prevent you from joining with other tenants in an application to collectively acquire the freehold); and
- you remain liable for the reasonable costs of the landlord(s) up to the withdrawal.
What if other tenants apply to collectively acquire the freehold?
As a 'qualifying tenant' it is open to you, if invited, to join with the other tenants in their application to collective acquire the freehold. Indeed, they will need the co-operation of at least half of the qualifying tenants in the building to qualify to proceed.
Any application by a tenant for an extended lease will, as mentioned above, be 'frozen' until the outcome of that application to collectively acquire the freehold has been determined (ie completed or withdrawn). After that, however, the application for the extended lease will continue.
Acquiring a new, extended lease would not prevent you from joining at a later date with other tenants in the building who may collectively seek to acquire the freehold. Of course, you would expect your contribution to the purchase price to be reduced accordingly in those circumstances.
The right to acquire an extended lease may be an attractive alternative to joining with other tenants in the building to collectively acquire the freehold, particularly if the building is well-managed. If you do wish to make a claim to purchase a 90 year lease extension, then we would be happy to advise on all aspects of the matter and to give an estimate of the likely costs.
Experience shows that the vast majority of claims proceed in a straightforward manner if the solicitors and the valuer work as an effective team. We can put you in touch with specialist valuers with whom we have worked on numerous successful lease extension claims.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.