6 September 2022

Applying for a Lease Extension

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Applying for a Lease Extension

By law, a leaseholder is liable to extend the lease of the property. As the lease term reduces, it becomes difficult to sell the property or mortgage, therefore, leaseholders can exercise their legal right to lease extension.

What is Lease Extension?

Anyone who owns a leasehold property has to enter into a contract with the landlord that details the term of the lease and the amount of ground rent and other charges. Each year, the lease term reduces and eventually depletes to zero. Once the lease runs out, the property will be transferred to the freeholder.

The leaseholder can extend the lease term through lease extension, given that they meet the eligibility criteria. This process is initiated by carrying out the professional leasehold valuation and negotiating a leasehold agreement with the landlord. The freeholder may provide a 90-year extension to the lease terms for qualifying leaseholders.

Eligibility Criteria for Lease Extension

Anyone is qualified to apply for a lease extension if

  • They were granted a long-term original lease for over 21 years (mostly 99, 125, and 150 years from the start)
  • The leaseholder has owned the property for at least 2 years. For shared ownership property, the statutory time starts only when you staircase to 100%.

The aforementioned rules do not apply if the property is provided as a part of the charity’s function or if it is a commercial or business lease.

Applying For Lease Extension

If you are eligible for a lease extension, here’s what you should do next

Value the Premium Payable For Lease Extension

Instruct an RICS valuer to confirm the premium payable to the landlord for a 90-year lease extension. The premium compensates the freeholder for letting you use the property for additional 90 years.

The premium is included within the Section 42 Notice, therefore should be valued accurately, otherwise, the landlord will likely refuse the offer with Section 45 Counter-Notice.

Serve the Section 42 Notice

Once you have valued the premium payable to extend the lease, ask the solicitor to serve the Section 42 Notice as well as review the lease and register it at the Land Registry.

The Section 42 Notice will include

  • Name and address of the qualified property tenant(s)
  • Name and address of the landlord
  • Premium offered for a lease extension
  • Lease term
  • Name of the leaseholder’s solicitor
  • Date by when the landlord should respond with a counter notice
  • Leaseholders signature

After the initial notice is received, the landlord has 21 days to request evidence or any information. Similarly, the leaseholder has 21 days to submit evidence or return information.

Landlord’s Section 45 Counter-Notice

As per the date specified in the initial notice, the freeholder will serve a Section 45 Counter-Notice stating

  • They agree to the terms of the lease extension agreement
  • Agree to the leaseholder’s request but not the terms
  • Do not agree to the terms with an explanation
  • Claim the right of redevelopment

Leaseholders and freeholders can negotiate on the premium and terms of the agreement or propose alternate terms.

Extending the Lease

If the landlord and leaseholder have reached an agreement, the freeholder’s solicitor will draft a new agreement or make changes to the existing lease and send it to the leaseholder’s solicitor.

Next up, the leaseholder will review the new/varied lease extension agreement to confirm it is in line with what has been agreed. The leaseholder will sign the agreement in the presence of a witness.

On the day of completion, the leaseholder’s solicitor will send the premium and other additional fees to the landlord’s solicitor. Upon completion, the leaseholder will pay stamp duty and other charges and register the new lease at the Land Registry.

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 that 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

Zehra works for a number of corporate immigration and family law clients. She advises on immigration matters including but not limited to applications under Tiers 1-5 of the Points Based System, EEA applications, domestic workers, students, family cases, including unmarried partner and marriage visas, settlement and applications for British citizenship.

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