The Lease Extension Process
by Daniela Litsova — Posted on 16 June, 2017
How the Lease extension process works
An explanation on how the lease extension process works and how we can help you to extend the terms of your lease.
Almost all leaseholders have the right to extend their lease under the 1993 Leasehold Reform Act, the main qualification being that you must have owned the flat for a period of two years or more. There is a process that you must follow and strict timescales to be followed by both sides.
Lease Extension procedure under the 1993 Leasehold Reform Act.
The 1993 Leasehold Reform Act gives you the right to extend your lease for an additional 90 years with no ground rent payable for the remaining term of the lease. The main qualifying criteria is that you must have owned the property for more than 2 years, and you must have a ‘long lease’ i.e. one originally granted for 21 years or more.
The first stage in the lease extension process is for you to serve a Section 42 Notice on the landlord, which is an opening offer for the extension of the lease. However, first you need to get hold of your lease and a get an estimate for the cost of the extension; please click here for an estimate, however, we always advise clients to go to a chartered surveyor for an accurate valuation. Please be aware that you need to add legal fees to your calculation and that you are liable for your landlord’s legal costs as well as your own. Those costs must be ‘reasonable’, but the bills will be coming to you. If you add £1500 – £2000 to the baseline cost provided by the lease extension calculator you will get an estimated figure for your lease extension.
It is important to find a solicitor experienced in leasehold legislation and someone to value your flat. A valuer is required to calculate the premium that you make to your landlord; the premium is a calculation based on what the landlord stands to lose if the lease extension is granted.
You also need to find who the ‘competent landlord’ is, i.e. the person capable of granting you the lease extension. It’s likely to be the landlord specified on your ground rent demands. But there may be other intermediate leases between you and the landlord or other complications. The competent landlord is the person to whom you’ll send the Section 42 Notice.
With the above information, your solicitor will be able to prepare the Section 42 Notice and send it to the competent landlord.
Marriage Value and the 80-year deadline
When you extend a lease that has less than 80 years to run, there is an additional fee to be paid to the landlord called a Marriage Fee. When a Lease is extended, it adds value to the property, sometimes this can be a substantial amount. Under the 1993 Leasehold Reform Act, the landlord is entitled to half of the increase in the value of the property when a <80 year lease is extended, this is called the Marriage value or Marriage fee, so-called because the value of the property + longer Lease (i.e. when Married together) exceed the combined value of the separate entities. When you extend a lease with a remaining term of 80 years or more, no marriage fee is payable. You should always look to extend a lease before it hits the 80 year mark for this reason.
Landlord’s Counter Notice
The landlord has 2 months to respond to the Section 42 Notice, but will possibly get in touch with you before then, either to request more information or to ask for access to the flat to do his own valuation. Any correspondence must be responded to within 21 days and that applies to both sides.
Your Landlord may not welcome the application to extend your lease, particularly if you are ahead of the game; from a landlords’ point of view, leasehold extensions are far more profitable on leases with less than 80 years to run i.e. where the landlord is entitled to receive a marriage value as part of the lease extension premium. While it’s unlikely that your landlord will indulge in any malpractice in this regard, you should be aware that he will thoroughly scrutinise any application where no marriage fee is involved and may look for grounds to delay or object to it. This means that your Section 42 Notice needs to be watertight.
The landlord will reply to the Section 42 with a Counter Notice, the most likely outcome is that he will acknowledge your right to extend, but disagree with the premium on offer, asking for a figure 30-50% higher. Hopefully, a compromise can be reached within a few weeks.
How we can help
Starck Uberoi’s property solicitors will provide you with an experienced and efficient leasehold extension service, helping you to either process an agreed extension or negotiate with the freeholder. To book an appointment please call 020 8840 6640. We are based in Ealing, our office is located 10 minutes from Ealing Broadway Station.