22 July 2020

The statutory and non-statutory lease extension routes from a landlord’s perspective

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If you are the freeholder of a block of flats which are let on long leases, your tenants may be entitled to claim a statutory lease extension from you. Alternatively, the tenants may request a non-statutory lease extension from you.

This article, gives a brief summary of the major advantages and disadvantages for these two types of lease extensions from the landlord’s perspective. This article does not consider the position of an intermediate landlord or if you, as the landlord, hold a leasehold interest only.

The process for extending the lease of a house is governed by separate legislation i.e. The Leasehold Reform Act 1967 and is not included within the scope of this article.

If you have any queries regarding an intermediate landlord or a leasehold house, please contact the Real Estate Team at Connaughts.

Statutory lease extension

A statutory lease extension also referred to as a ‘’formal’’ statutory route is governed by the Leasehold Reform, Housing and Urban Development Act 1993 (as amended by the Commonhold and Leasehold Reform Act 2002) (‘’the Act’’). 

Advantages

  1. The tenant is limited as to the amendments that can be made to the lease.
  2. The tenant is obliged to pay for your reasonable legal costs and your surveyor’s fees.
  3. If the tenant withdraws from the process, they will still be liable for your reasonable costs.
  4. The Act sets out strict time limits and deadlines and there are consequences for tenants who fail to keep to these statutory deadlines. If the tenant misses one of these deadlines at a crucial point, the tenant will lose his or her right to claim a statutory lease extension for a period of 12 months.

Disadvantages

  1. The Act requires that the lease is extended by 90 years and that the ground rent is reduced to a peppercorn – there is therefore no room for negotiation, although you will be compensated by payment of a premium for the lease extension.
  2. You are limited as to what amendments you can make to the lease as the amendments must fall within the strict provisions of the Act.
  3. You cannot withdraw from the process once the tenant has served a claim notice.
  4. There are repercussions for landlords if they fail to keep to the strict timeframes of the Act. If you fail to adhere to a deadline or you serve an invalid counter notice, the tenant ask the Tribunal or the Court to determine the terms of the lease extension (whether they apply to the Tribunal or the Court will depend on the status of the transaction). If you fail to serve a counter notice on time or your counter notice is invalid, the tenant is entitled to a lease extension on the terms set out in their claim notice (including the premium).
  5. If a tenant makes an application to the Tribunal or Court it is highly unlikely that you will be able to recover your costs against the tenant.

Non-statutory lease extension

This is also referred to as voluntary lease extension.  A tenant can approach you and ask if you are willing to grant him/her a lease extension outside the strict statutory procedure governed by the Act.  You are under no obligation to come to a voluntary arrangement even though this can sometimes suit both you and the tenant as it provides greater flexibility over a statutory lease extension.

Advantages

  1. This route is not governed by the Act and therefore there are no strict deadlines.
  2. the tenant is not entitled to an additional 90 years. You can negotiate the lease term with the  tenant.
  3. the tenant is not guaranteed the peppercorn ground rent. You can offer as low or as high a ground rent.
  4. The offer that you make to the tenant can be given on a “take it or leave it basis”, giving the tenant very little room for negotiation.
  5. You can amend  the lease without having to fall within the strict provisions of the Act.
  6. You can still ask the leaseholder pay your reasonable costs.
  7. You can seek to charge whatever you want to for the lease extension although you should be guided by a surveyor (at the tenant’s cost) as to what is reasonable.
  8. On the whole, voluntary lease extensions by way of private agreements proceed more swiftly. 

Disadvantages

  1. The tenant can ask you for any number of additional years and any amount of ground rent.
  2. The tenant can request any other amendments to the lease that they wish.
  3. If the tenant is not happy with the terms proposed, they can still opt to make a statutory lease extension claim.

It is crucial that you discuss any proposed amendments with a solicitor before agreeing to them formally.

We at Connaughts can assist you in both statutory and voluntary lease extensions.  If you would like to discuss this further please contact us on 0203 909 8399 or email at enquiries@connuaghtlaw.com

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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