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Issues affecting lease extensions

I am frequently asked how quickly a lease can be extended. A flat owner may discover that the lease is not going to be easily saleable because of the lease length. Buyers are becoming more knowledgeable about leasehold law and are aware that a lease with less than 80 years to run will be quite a lot more expensive to extend than one with, say 85 years to run due to the valuation requirements of the Leasehold Reform, Housing and Urban Development Act 1993. Additionally, most mortgage lenders will not be willing to lend where a lease has less than 65 years to run and valuers will in any case take into account that a flat with a lease of less than 80 years is less valuable due to the impact of marriage value.

Is the position different for a flat owner who is a member of a flat management company? It may be… a flat management company that also owns the freehold may be able to grant a lease extension to members of the company for no premium in a case where those flat owners already own the freehold collectively because they shared in the cost of purchase of the freehold.

Anyone who is thinking of buying a flat with a lease length of less than, say, 90 years, should think carefully about how and when the lease should be extended. The seller will have the right to extend the lease if it has been owned for more than 2 years but the buyer will have to wait 2 years before starting the process under the 1993 Act (see our Guidance Note). A seller may be willing to start the process by serving a notice to claim a lease extension which the buyer then takes over but the documents must be properly drafted and specialist valuation advice must be obtained to make sure that the buyer is able to carry on and successfully complete the lease extension later. It is clearly worth considering this step if a lease has less than 85 years to run but the position is less clear-cut if the lease is longer. A buyer may be happy to take the lease at its existing length if the price being paid is an adequate reflection of the cost that will have to be incurred at a later date to extend it.

It may be possible to extend a lease quite quickly if the landlord is willing to do so. Owners of large portfolios of ground rent estates are very familiar with the 1993 Act and are well aware that a flat owner who is in a hurry to sell may not wish to use the procedure set out in the 1993 Act to claim a lease extension and will be willing to agree a voluntary lease extension. Where terms are agreed “outside of the Act” the landlord can gain a considerable advantage and maintain the investment value of their portfolio by insisting that a ground rent be retained but in return will charge a lower premium for a shorter lease extension. The new ground rent will normally be higher than the current ground rent where there is a voluntary lease extension . If the lease is extended using the procedure in the 1993 Act there is no flexibility as to the terms because the ground rent has to be reduced to a peppercorn and the lease length must be increased by 90 years.

A flat owner who needs to extend a lease quickly may wish to approach the landlord directly and enquire what terms can be offered. Typically, the landlord will require an upfront valuation fee to be paid so that it can obtain advice from its own valuer as to what would be a fair price. Often the price on offer will be to “bring the lease back up to 99 years” and to require an increase in ground rent to over £200pa which must then increase every 25 years thereafter or more frequently. If a flat owner takes independent valuation advice this will confirm that on paying a little more money 90 more years could be obtained and the ground rent could be cancelled but only if the flat owner is willing to incur further time and cost in using the 1993 Act procedure.

There is an undoubted saving of time in going ahead with a voluntary lease extension. Once terms are agreed it can typically be completed in less than 2 months. A 1993 Act lease extension may take 6-12 months, dependent on the extent of the cooperation of the landlord. There is also a saving in fees as the cost of serving the initial notice to start the process is not incurred and the fees the flat owner has to pay to reimburse the landlord for its own legal fees will be less.

The starting point for a flat owner considering lease extension is to take valuation advice from a surveyor experienced in valuing flats for lease extension.

SA Law is a member of the Association of Leasehold Enfranchisement Practitioners (www.alep.org.uk) The association has both solicitor and surveyor members specialising in this field. Once valuation advice has been taken our team can start the lease extension process, whether on a voluntary basis or as a claim under the 1993 Act.

© SA LAW 2017

Every care is taken in the preparation of our articles. However, no responsibility can be accepted to any person who acts on the basis of information contained in them alone. You are recommended to obtain specific advice in respect of individual cases.