Category Archives: Lease Extensions

Information for leaseholders and freeholders about the process and costs of extending the lease on a leasehold property.

Serving notice under the 1993 Act – “It’s just filling in a few forms, right?”

As I explained in my recent talk, “Take No Notice” with Andrew Pridell of APA Associates at the ALEP Autumn Conference on 18 October 2011, serving notice under the Leasehold Reform Housing and Urban Development Act 1993, is not as easy as it seems.

This was a talk to other professionals at the ALEP (Association of Leasehold Enfranchisement Practitioners) Autumn Conference and although that talk was aimed at professionals (a full set of notes appears at leaseholdreformnews.com) there are a few points that anyone looking to engage with this area should bear in mind.

  • The notice must be signed personally by the qualifying flat owner. For instance, someone holding a power of attorney cannot sign on behalf of someone else.
  • A UK company is going to need to execute the notice as a deed. An overseas company will present different issues.
  • Any offer figure must be made in ‘good faith.’ This has a specific technical meaning and ideally therefore (although it is not mandatory) specialist valuation advice needs to be obtained.
  • Allocating any offer figure must be done correctly. This will involve consideration of technical issues such as additional freeholds, or other leasehold areas to be included in the claim. If there are other leasehold interests or superior (head) leases then this too needs careful consideration. The valuation and legal advisor will need to liaise closely.
  • The notice needs to be addressed to the correct parties. Once again this is technical and any slips will make the notice void. The list to be served may include other landlords and other parties. The right addresses for service are not always readily apparent.
  • Multiple signatures of a single notice may present significant legal issues particularly, if this is done without proper advice and supervision. Using a solicitor will almost certainly assist in the event of a challenge.

Bear in mind that if the notice is not served correctly that you will be liable for the landlord’s costs of investigating your claim and serving counter notice (legal and valuation) and you will have to start all over again. If your lease has slipped below a critical point (e.g. below 80 years), then irreparable damage may be done.

Similarly, in a collective claim where a large number of people have to sign a notice, if there is an invalid notice, vital impetus will be lost and the claim may take a long time to start going again. This is to say nothing of the possible expense and inconvenience of a court case investigating the notice if invalidity is not conceded.

Likewise, without the benefit of specialist help, where difficulties have arisen, those qualifying may actually withdraw a perfectly good claim – leading to the position that they cannot bring a fresh claim for another year.

For all of these reasons (amongst others) specialist help should always be sought. As such you should always use a firm of legal or valuation advisors with a proven track record in this area, such as an ALEP member.

 

I have been offered a ‘voluntary deal’ for a lease extension with a ground rent. Is there anything I should look out for ?

“I have been offered a voluntary deal with an increasing ground rent – the premium seems OK (lower than I was being offered for a ‘statutory’ deal). What should I do?”

This is often a difficult decision to make and depends on a number of factors.

Firstly, you will almost certainly need independent valuation advice. The landlord may well have put forward a ‘deal’ that appears to make sense, but remember a lease with a premium and a ground rent needs to have the correct balance of both to make sure that you do not end up paying for the same thing twice.

Often the freeholder/ landlord will ask the flat owner to pay for a valuation – although the contents of this will not be disclosed to the flat owner and a deal will be presented on a ‘take it or leave it’ basis. Of course, this is entirely correct, as if you want to carry out a ‘voluntary’ deal, then this reflects the true position because unless you can both agree the terms then no sale of a lease extension is going to be possible.

A lot of landlords put forward terms that are very similar to those available under the 1993 Act, or that include ground rents similar to the terms of the existing lease. These can often represent good value, for the reasons discussed below.

From a landlord’s perspective, ground rent is what gives the freehold long-term value. Increasing, or keeping a ground rent may mean very little to the flat owner and often if the deal is ‘right’ there can be a ‘win win’ situation where both the freeholder and the flat owner are happy.

Often an informal deal does have certain attractions. It will be quicker and perhaps the transactional costs will be lower or certainly more contained. If you do not qualify for a statutory lease extension (for instance because you have not owned the flat for 2 years), then this can also may only be the ‘only’ route open to you if you cannot extend your lease under the statute yet and do not want to wait. It might also be that you are selling the property and cannot put a statutory lease extension claim together to hand on to the buyer because they need the lease to be extended by the time they complete because of their mortgage lender’s requirements.

As to what to do if the proposed new lease contains a ground rent, one of the main points to consider is probably your own long-term view. If you are going to sell your property in one or two years’ time then you may not be too concerned about an escalating ground rent in say 15 or 20 years’ time. However, if any new owner (or indeed you, if you keep the flat) wants to purchase the freehold or extend the lease under the 1993 Act then any new ground rent will have to be ‘bought out.’ If the rent is small, this will not be a big factor, but if the ground rent were to double, say, every 15 or 20 years and starts out at £250 per annum then rises, say to £250, £500, £1000, £2000 the amount will be much more significant.

Solicitors have a duty to report any ‘onerous’ ground rent provisions to mortgage lenders and the test is essentially whether the ground rent imposed will affect the marketability of the property. If the rent is low now, then this is unlikely to be a problem, but it has to be borne in mind that at some point in the future this is likely to be a bigger issue. Whether a rent is likely to affect marketability is really a question for a valuation professional.

If the proposed terms include a ground rent, then it is very probably worth getting this checked out to ensure that the transaction represents fair value. If you are looking for a recommendation for a surveyor or valuer to assist you, then of course your solicitor (if expert in this field) should be able to recommend someone suitable, you may also be able to find details of suitably accredited valuation professionals on the ALEP website.

I am a landlord and want to do a deal with my tenant – how do I do this?

If you want to sell a lease extension, the first thing you need to know is that you are probably going to need valuation advice from a surveyor properly qualified in this area.

The price that should be charged for the lease extension needs to be agreeable to both parties. It may be possible to arrange for a joint instruction of one valuer who will provide an opinion on the  ‘fair’ price to be paid for the lease extension.

Alternatively, you may simply ask the Valuer to work for you as landlord. If this is done the report prepared does not need to be disclosed to the flat owner.

However, the costs of this valuation should be paid for by the party requesting the extension. As such your surveyor’s or valuer’s fees should either be paid upfront by the paying party or a solicitors’ undertaking should be obtained requiring them to pay these within a specified time frame.

You may also wish to consider the terms to be offered – ie. the mix of premium and ground rent – for instance, will you offer terms similar to that available under the 1993 Act or will you offer a lease extension back to 125 years or 99 years possibly retaining a ground rent ? You will require specialist advice to make this decision – and may need a suitably qualified solicitor to advise on the best way to achieve terms and the difference between them.

 

I am thinking of buying a flat with a short lease, is there anything I can do?

Yes, there certainly is. Why not see if you can get the seller to serve a Notice claiming an extended lease, so that you can take the process over when the flat is sold to you?

How do I do this?

Provided that the seller has owned the property for more than 2 years (and has not tried to bring a previous lease extension claim and abandoned it in the last year) the current owner will have the right to an extended lease under the 1993 Act.

You can (as part of the purchase process) take steps to arrange for a lease extension Notice to be served by the seller and then transferred to you so that you can take over the lease extension claim.

The notice needs to be not only properly drafted and served but must also be assigned to you correctly. You should check that your legal advisor is experienced in this sort of work. You will also need specialist valuation advice about the premium to put forward in the notice.

Bear in mind that any valuation report prepared for the seller may not be addressed to you (so you will not be able to rely upon it against the surveyor or valuer unless this person specifically confirms this). In addition, you may simply want your own ‘view’ on the likely price for the lease extension. This information could impact on the price to be paid for the flat if this has not been properly taken into account.

If you do take this step as part of the purchase, you will save on having to wait 2 years to qualify for the lease extension.

The valuation date for the claim will be set as the date on which the Notice is served. If you are of the view that in the relevant market for the flat prices are rising, this may also be a good thing.

Finally, if you do wait the lease will be two years shorter when you make the claim. Particularly, if the lease has less than 80 years to run (or is likely to slip into this category shortly after you buy the flat) taking action now will almost certainly save you from paying a lot more for a lease extension in the future.