2. The Northfields Quick Guide
to Lease Extensions
Do you need to extend your lease?
The length of a lease has a significant impact on the value of a property so,
whether you are buying or selling, it’s crucial to know where you stand.
We’ve helped thousands of property owners maximise the value and
salability of their homes, so we’ve put together this guide to give you a brief
outline of how this potentially complex area works, what you need to do and
where to go for the best advice.
Can I extend my lease?
Most flat owners with long leases can extend them by exercising the rights
granted in the Leasehold Reform Housing and Urban Development Act 1993.
The amendments made in the Housing Act 1996 and the Commonhold and
Leasehold Reform Act 2002 should make it easier and cheaper for you to
extend your lease. Your original lease must have been for a minimum term of
21 years and you must have owned your lease for two years in order to
qualify. The new lease adds 90 years to your existing lease and at a
peppercorn rent (very small payment).
How is the price for the new lease calculated?
The calculations are complex and, to ensure you get a fair deal, it makes sense
to use the services of an experienced surveyor. The surveyor will base the
calculation on the value of your flat, the level of your rent, and how long the
lease has to run. In effect you pay:
1. Compensation to the Landlord for loss of rent payable for the
remaining term of the existing lease.
2. Compensation to the Landlord for deferring the return of the flat to
him by 90 years.
3. Half of what is known as “marriage value”. This is the amount by
which the value of the new lease exceeds the combined value of
your and the Landlord’s current interests. Marriage value is only
payable where the existing lease has less than 80 years to run.
Most surveyors will give you a high and low price; the final price is likely to
be somewhere in between.
12 March 2008 1
3. Serving your notice
Using a conveyancing solicitor, you serve a notice to the Landlord specifying
the price you propose to pay for your new lease. The price must be realistic
or your notice will be invalid. You must give the Landlord two months to
serve a counter-notice saying whether he admits your right to a new lease
and, if so, on what terms. Your Landlord can ask you to prove your
ownership of the flat and pay a 10% deposit of the sum you’ve proposed for
the new lease.
The Landlord’s counter-notice
The Landlord must serve a counter-notice by the date you specified stating
whether your entitlement to a new lease is admitted and, if so, setting out any
counterproposals for the price of the new lease.
If the counter-notice denies entitlement to a new lease it must explain why.
The Landlord must then commence proceedings in a county court within two
months for a declaration that you are not entitled to a new lease.
If the Landlord fails to serve a counter-notice you are entitled to apply to a
county court for an order declaring entitlement to a new lease on the terms
proposed.
Agreeing terms
In most cases the price and terms are agreed between lease-holder and
Landlord. If you can’t agree, two months after the counter-notice has been
served, you can apply to the Leasehold Valuation Tribunal (LVT) to
determine these matters for you.
Completing the new lease
Once terms have been agreed or determined by the LVT, you follow a
relatively straightforward conveyancing process with the new lease being
granted to you by the Landlord and being registered at the Land Registry.
How long will it take?
If it is necessary to have terms determined by the LVT the process will take
approximately 10 – 12 months.
Notice claiming new lease served March
Landlord’s counter-notice served April
Application lodged with LVT June – September
Hearing in LVT October/November
LVT decision received November
New lease completed December/January
12 March 2008 2
4. Frequently asked questions
1. What happens when the Freeholder (Landlord) offers an extension
on different terms? You are under no obligation to accept and it’s
seldom to your advantage to do so. A commercially minded
Freeholder is likely to try and maximise his/her return. Tip: The
advice of a qualified surveyor is invaluable.
2. How is the premium for the lease extension calculated? Although the
Act sets out a methodology that both parties must follow, there’s
considerable scope for variation, and it is quite usual for the respective
sides to come up with widely varying figures. A surveyor acting for
the Freeholder is likely to use valuation tolerances in the interests of
his/her client. Where a lease term falls beneath 80 years, the basis of
valuation includes a “marriage value” which will increase the level of
premium payable, sometimes by a significant amount. Tip: Ensure you
have the expertise of an experienced solicitor early on in the process.
3. What happens if the parties can’t agree a figure? The parties can
involve an Leasehold Valuation Tribunal. These are relatively low-cost
hearings whose primary purpose is to determine the appropriate level
of premium that should be paid. Tip: Put forward a realistic price at
the outset; unrealistic figures are routinely set aside at tribunal.
4. What costs are involved? The Leaseholder bears the Freeholder’s
reasonable legal and valuation costs as well as his/her own. This
includes professional fees (e.g. solicitors and surveyors) and other
expenses paid because of the transaction. It does not include costs
which are paid because of an appearance before the LVT. If the costs
are believed to be unreasonable an LVT can be asked to make a
determination. Tip: seeking independent advice from solicitors and
surveyors is likely to save money.
5. My lease still has more than 60 years to go – why would I want a new
lease? Your lease loses value as it gets shorter. Many building societies
and banks won’t give mortgages on flats with leases of less than 70
years. You may have difficulty selling your flat or realising its full
value without a new lease. Tip: the leaving the lease to drop lower
often means more expense in the long term.
6. I rent out my flat but have never occupied it. Can I still get a new
lease? Yes, although there used to be a three year residence
requirement to qualify for a new lease that has now been abolished and
replaced by a two year ownership requirement.
7. I am in the process of buying a flat and want a new lease. Will I have
to wait until I’ve owned the flat for 2 years before I can get a new
12 March 2008 3
5. lease? No, provided your vendor has owned the flat for at least two
years he/she can serve a notice claiming a new lease and then assign
the benefit of the notice to you at the same time as you complete the
purchase of the flat.
8. My mother was planning to extend the lease of her flat but never got
round to it. As executor of her estate can I apply for a new lease?
Yes, if she owned the flat for at least two years you can apply for a new
lease provided you do so within two years of probate being granted.
Where do I go for advice?
At Northfields we work very closely with experienced local solicitors and
surveyors who specialise in lease extensions. We’d be happy to recommend
someone to you. If you would like further property advice in relation to
selling or letting we’d be delighted to help.
Diane Schaefer
Head of Marketing & New Business
t: 020 8799 3377
e: diane.schaefer@northfields.co.uk
The Northfields Quick Guide series
The Quick Guide to Selling
The Quick Guide to Buying
The Quick Guide to Letting
The Quick Guide to Renting
The Quick Guide to Tenancy Deposits
The Quick Guide to HIPS
The Quick Guide to Lease Extensions
For a copy of other guides in this series, visit www.northfields.co.uk and go to the
Information Centre, or call Diane Schaefer on 020 8799 3377.
Disclaimer
The information contained in this sheet is a guideline only and a summary of
the main points of current legislation. Please be aware this is potentially a
complex area of law where it is essential to have specialist legal advice before
taking any action.
12 March 2008 4