Extending A Residential Lease - Statutory Style - Faqs

If you own a leasehold property then you have right to extend the lease by 90 years at a peppercorn rent upon satisfying certain criteria.

Please see the below questions and answers which deal with this type of lease extension.

What criteria have to be satisfied?

The Leasehold Reform, Housing and Urban Development Act 1993 (the Act) states that a lease extension by way of a new lease will be granted where:

  • the lease was originally granted for a term of more than 21 years
  • the property has been owned by the person requesting the extension for more than 2 years

Are there any exceptions?

The exceptions include the landlord being a charitable housing trust or where the lease is a business tenancy.

As there are a number of other exceptions any person seeking to extend their lease should seek legal advice before proceeding.

Do I need to extend?

Part of the value of the lease is connected to its length - as the length decreases so does its value.

Therefore if the tenant intends to sell the property with a lease term of less than 70-75 years this will have an impact on those purchasing with a mortgage as most lenders now require an unexpired term of at least 75 years before they are willing to lend.

What is the effect of a statutory extension?

Any ground rent will be reduced to a 'peppercorn' which will be a low/nominal rent and any unexpired term of the lease will be extended by 90 years.

Therefore if a lease has 70 years left unexpired once the extension has been completed the term will be 160 years.

The Process

The tenant will instruct a chartered surveyor specialising in lease extensions who will establish the figure they believe should be paid by way of a premium for the extension.

Once the tenant's valuation has been completed he will instruct his solicitors who will serve notice on the landlord which will trigger the statutory process. This notice will include the premium amount the tenant is initially willing to pay.

It is essential that the notice is valid and served correctly to the landlord.

Once the landlord receives the notice they will instruct their own surveyor and negotiations will begin in regards to the premium.

Time and Costs

It can take up to 6-9 months due to complete the above process.

The costs for a statutory lease extension are:

  • Tenants surveyor fees
  • The premium
  • Tenants solicitors fees
  • SDLT (depending on amount paid)
  • Land Registry fees
  • Any other disbursements such as search fees

In addition to the above as soon as the tenant serves notice on the landlord the tenant will be liable for the landlord's reasonable costs in connection with:

  • any investigation they have to carry out to confirm the tenant qualifies for a new lease; and
  • their surveyors fees; and
  • the negotiating/ granting the new leasex

The landlords reasonable costs are protected by the Act and will be payable whether or not the new lease is actually granted. Therefore if the tenant decides not to proceed or negotiations breakdown these costs will still be payable by the tenant.

What if there is a dispute?

The Act provides that any dispute over the new lease or the premium can be taken to the First Tier Tribunal. This is a last resort where negotiations have broken down and agreement between the parties cannot be made.

There are strict timelines and procedures in regards to this process which your solicitor will be able to advise you on.

What of am the landlord who receives a statutory notice requesting a lease extension by way of a new lease?

Do not ignore the notice. If you fail to respond with a counter-notice within the specified timescale, normally 2 months, you will have to grant the new lease for the premium as set out in the tenants notice.

You should therefore instruct a solicitor immediately to confirm that the tenant is entitled to the new lease, that the tenants notice is valid and if so to draft and serve the counter notice.

Our solicitors within the Commercial Property Department have a great deal of experience and expertise in dealing with the lease extension process for both tenants and landlords. If you would like further advice in relation to a lease extension or any other commercial property matter please do not hesitate to contact us.

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