Tag Archives: faq

Am I a qualifying tenant for lease extension?

In order to qualify for a lease extension you need to own a ‘long lease’ of a flat.  A ‘long lease’ is a lease that is granted for more than 21 years originally (regardless of how long the lease is now).  You need to have been the registered owner of the property at the Land Registry for at least 2 years.

Subject to these conditions, you can bring a claim to an extended lease.  There are no restrictions on who may bring a claim and therefore a company or an individual or a trust can claim an extended lease, subject to 2 years’ ownership and the property being a long lease flat as stated above.

Will the ground rent increase after a lease extension?

If your lease is extended under statute the ground rent will be reduced to a peppercorn (i.e. nil). There will be no more ground rent to pay and the lease will be extended by 90 years on top of the unexpired term of your existing lease.

In other words, if your lease was originally 50 years long the new lease would be 140 years, with no ground rent for the remainder of the term.

If you agree a voluntary deal with your landlord/freeholder to extend the lease then it is possible that the ground rent will increase and there are no controls over what kind of ground rent parties may agree.  Typically the ground rent may be in a schedule, something like £200 to £300 per year increasing at 25 year intervals for the duration of the lease term.

It is also possible that a new ground rent proposed by the freeholder could review to a fraction of the open market value of the property, or to a much higher compounded sum of money in which case independent advice should be taken from a valuer before committing to any transaction.

If the ground rent is deemed too high then in the future the property could become un-mortgagable.  Or, the ‘balance’ between premium and ground rent could be wrong. According to the statute, compensation for the loss of ground rent forms part of the premium payable. If there is a ground rent retained, then that part of the premium is no longer payable, otherwise the flat owner can end up paying twice for the same thing.

You should also consider whether decreasing the ground rent will increase the amount that would need to be paid if there were to be a claim to the freehold or subsequent claim to extend the lease, on the basis that the ground rent income would need to be capitalised out as part of compensating the freeholder.

I am a freeholder. Do I have to grant a lease extension to the leaseholder?

There is no obligation to grant a lease extension to a leaseholder who simply asks for one.  However, if a notice is served by a qualifying leaseholder and followed through, then the leaseholder has a statutory right to compel the landlord to grant the lease extension to 90 years on top of the unexpired term.  If you fail to respond to the notice that is served, with a counter notice in the appropriate period then you are deemed to grant the lease extension at the premium proposed by the leaseholder.

Accordingly, if notice is served and followed through you will have to grant a lease extension to the flat owner.

If you are served with any kind of statutory notice then this should not be ignored as the consequences can be disastrous. If you are served with a notice under Section 13 or Section 42 of the Leasehold Reform Housing and Urban Development Act 1993, then your reasonable costs will be covered by the flat owner(s) serving the notice. You should therefore take professional advice as soon as possible.

What happens if we cannot agree on how much the lease extension should cost?

If the parties cannot agree on a statutory case, the matter is referred to the First Tier Tribunal of the Property Chamber and they will determine the price that is paid.  The Property Chamber is an ‘expert’ tribunal and can make its own assessment but will initially listen to the evidence submitted by both parties.  It is necessary to produce an expert valuation report and to provide expert evidence to the tribunal.

If you are progressing outside of the statute and cannot agree, then the best solution is to serve a notice and bring the matter within the statutory control of the 1993 Act. At the very least in this way you can ‘fix’ the valuation date at the date of the Notice, so that fluctuating property markets will not impact the price of your lease extension.