14 July 2020

A Guide to Lease Statutory Extension Enfranchisement

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If you own a property that has a lease on it you will surely be aware that this ownership lasts only for a period of time or term of years. As the lease gets shorter and the number of years goes lower, the value of the lease decreases and it becomes more expensive when you extend the lease. Leasehold properties are therefore often described as depreciating assets because of the value of the property reducing every year.

It is therefore beneficial to increase the term of the lease especially if you want to sell the property. Sometimes it is also difficult to sell a property with a short lease because mortgage lenders may be reluctant to lend money on such properties. The process of increasing the term (number of years) of the lease is referred to as a lease extension, it increases the underlying asset value of the property.

There are two ways that a lease extension can be achieved; statutory lease extension or voluntary lease extension. We at Connaught’s are happy to help in the process of extending your lease.

A statutory lease extension

This is governed by the Leasehold Reform, Housing and Urban Development Act 1993 (the Act) which provides a strict procedure and strict deadlines for lease extensions. A statutory lease extension allows for an additional 90 years to be added to the term of your lease and your ground rent to be reduced to a peppercorn (nil).

The benefits of keeping the process formal with a statutory lease extension include:

  • You save money as your ground rent is reduced to zero for the duration of the lease. An informal arrangement could mean your ground rent is increased
  • You are protected – if things go wrong you can go to a property tribunal
  • You can obtain a longer extension – thereby saving money for future extensions
  • Your property is more appealing to prospective future buyers with a longer lease and no ground rent
  • You can save on waiting time – if you are buying a leasehold property you can ask the seller to start the statutory lease extension process for you

There are six main steps for a statutory lease extension.

1) Qualification

Under the Act, you must be a qualifying tenant (QT) of a flat in order to extend your lease. A QT must have owned the flat for at least two years and the original lease must have been a long lease i.e. a lease originally granted for a term of at least twenty one years.

2) Valuation

Once you have established that you are a QT, you should have a valuation carried out.

The valuer will inspect your flat and ascertain the price that we should enter into your Section 42 Notice (see below), known as the premium.

The valuer you appoint should specialise in leasehold enfranchisement valuation.

3) Service of a Section 42 Notice

We at Connaught’s will then review your registered leasehold title together with your lease and draft the Section 42 Notice (the Notice) for service upon your landlord.

We will need to ascertain the following information,

  1. The identity of the competent landlord. This can be a person or a company, and you will need their name and address.
  2. Details of any intervening or head leases, and the name and address of the relevant head leaseholders.
  3. A copy of your own lease and documents which prove you own the flat (for example, Land Registry entries).

The Notice we draft will inform your landlord that you are exercising your right, under the Act, to extend your lease. The Notice will also set out any amendments to your lease which we consider to be necessary and available under the Act (which in some circumstances can be used to modernise an older style lease).

Once the Notice has been served, the landlord can request a deposit which is calculated at 10% of the premium contained in the Notice (or £250 if 10% of the premium is less than £250).

The landlord is also entitled to have their own valuation carried out in order to determine the premium that will be inserted into their Counter-Notice (see below). You will need to provide access to your flat in order for this to be done.

4) Section 45 Counter Notice

Under the Act, the landlord has two months to respond to the Notice with a Counter-Notice. The Counter Notice will state which provisions of the Notice the landlord accepts or rejects and where any provision is rejected, a counter-proposal should be made. The Counter Notice will also contain any additional provisions that the landlord wishes to include.

The Counter Notice will usually contain a premium that is greater than the premium in the Notice, often considerably so. This is not unusual and the two figures will be the starting point for each party’s valuer to begin negotiations. The premium that is eventually agreed between the parties will become the purchase price for the new lease.

The terms of the lease (including the premium) will need to be agreed within six months from the date of the Counter Notice. We will provide comprehensive advice to you on what terms should and should not be agreed.

If no agreement can be reached between the parties (on terms and/or premium) then it will be necessary to issue an application in the First-Tier Tribunal (FTT) in order to protect your lease extension claim. The FTT will decide on any outstanding matters that the parties have been unable to agree.

If no protective application is made within the six month period then your claim will be deemed withdrawn and the Act prevents a further claim from being made for a period of twelve months.

6) Completion

Once terms are finally agreed, we will have a period of four months to complete your lease extension and following completion, we will apply to the Land Registry to register your lease extension.

We at Connaught’s assist our clients in this statutory procedure from start to finish. We understand how beneficial a lease extension is for our clients in the long term and provide them with up to date advice and guidance in doing so.

Please contact us for further information or to book an appointment with one of our specialist solicitors to begin your lease extension process.

Disclaimer:

The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Connaught Law and authors accept no responsibility for loss which may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please don’t hesitate to contact Connaught Law. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Connaught Law.

About the Author

Nauman Javid
Nauman Javid has established himself as a solicitor representing high net worth individuals and families. Clients have chosen him to handle their private and commercial interests, knowing that he understands the passion that drives them.

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