Lease Extension

Lease valuation refers to the process of determining the worth of a lease extension. As per the Leasehold Reform, Housing and Urban Development Act (1993) leasehold owners have the right to request a 90 year extension on their lease and eliminate ground rent with payment.

To assess the value two surveyors are involved—one representing the leaseholder’s interests and another representing the freeholder’s interests. The valuation takes into account factors:

1. Compensation for the freeholder’s loss of ground rent.
2. Compensation for preventing the freeholder from acquiring the property for 90 years on top of the existing term.
3. 50% of what's known as "marriage value."

If there is disagreement between both surveyors regarding the valuation the case can be referred to the First tier Tribunal for a decision.

While a leasehold calculator can provide an estimate of associated costs for extending your lease it's important to note that it may not consider all details about your property and market conditions. Therefore it should be seen as an estimate. For an assessment it is advisable to consult a qualified surveyor and legal professional who specialise in matters related to leasehold extensions. We can assist you in organising this consultation if needed.

To start the process of extending the lease on your property it's important to determine if you meet the criteria for a statutory lease extension. These criteria include:

1. Owning the property for 2 years minimum.
2. Having a lease originally granted for a term of least 21 years minimum.
3. Ensuring that no more than 25% of the property is used for commercial purposes.
4. Having more than two thirds of the tenants qualify as qualifying tenants.
5. The property should have vertical division.
   

Please note that you won't be eligible if the freeholder operates as a charitable trust or if the lease falls under the category of a commercial lease.

You can seek assistance from your solicitor. Visit LEASE to determine if you meet these qualifications. Once you have confirmed your eligibility please get in touch with us again to arrange for a surveyor.

To follow statutory procedure you would ordinarily engage a solicitor who can handle the task of serving notice. Legal advisors are usually quite helpful during the intricate negotiations that ensue.

If your property has a mortgage obtaining approval from your lender for the lease extension becomes important. Your lender may also require you to sign a Deed of Substitution to safeguard their interests in relation to the lease. The final step involves registering the lease extension with the Land Registry. The existing leasehold title will then be replaced with a new one and this registration process may take around 6 months to complete.

Considering how intricate lease extensions can be it is advisable to seek assistance from professionals such as solicitors and surveyors who have extensive experience in lease extensions.

There are two primary methods available to a leaseholder seeking an extension to their lease term:

1. Private Agreement: the leaseholder can negotiate with the freeholder privately and reach an agreement regarding the lease extension terms.
2. Formal Notice (Section 42 Notice): the leaseholder can choose to serve a formal notice under Section 42 of the Leasehold Reform, Housing and Urban Development Act 1993. This notice initiates the legal process for compelling the landlord to grant a lease extension.

When serving a formal notice, the leaseholder must include a future date that is at least 2 months from the date of notice by which the freeholder has to respond. This provides the freeholder with a reasonable period to consider and reply to the proposal. If the freeholder does not serve a Counter Notice by the specified date, then the leaseholder has the option to apply to the County Court. The court may grant the leaseholder a new lease on the terms proposed in their initial notice.

If you don't meet the requirements for a lease extension under the Leasehold Reform, Housing and Urban Development Act (1993) you still have the option to pursue an informal approach whereby you negotiate directly with the landlord for a lease extension. However, be aware that this alternative doesn't offer the level of protection as with the statutory process outlined in the Act. So, be mindful of the fact that by choosing the informal route the landlord has the right to decline a lease extension or impose terms without the safeguards provided by legislation.

You  may want to extend the lease on your home to maintain its value and provide a return on your investment. Delaying this process can lead to extra costs as explained below.

The value of leasehold properties naturally decreases over time and this can accelerate as the lease term gets shorter. Once it reaches 80 years or less, securing a mortgage becomes more difficult, thereby making it harder to sell the property when you decide.

Additionally, when you opt for a lease extension, you'll be responsible for paying 50% of the "marriage value," which is basically the increase in property value resulting from extending the lease. 

If you are considering buying a home exercise caution with properties that have less than 90 years left on their leases. Try to maintain a buffer above the 90 year threshold so that you have a decent amount of time to meet the eligibility requirements for a statutory lease extension and before incurring any potential costs associated with the marriage value.

To initiate the statutory lease extension process under the Leasehold Reform, Housing and Urban Development Act 1993, follow these steps (subject to advice by your surveyor and legal advisor):

1. Check your eligibility: confirm you meet the criteria for a statutory lease extension under the above Act.
2. Inform the Freeholder: notify the freeholder of your intention to extend the lease by statutory procedure.
3. Hire a solicitor: instruct a solicitor specialising in lease extensions, preferably one who is a member of the Association of Lease Extension Practitioners (ALEP) and a good experience track record.
4. Engage a local surveyor: instruct a knowledgeable local lease extension surveyor to conduct a valuation.
5. Serve Tenant's Notice: this is under section 42 and outlines a formal offer for the premium derived from the valuation.
6. Pay deposit: submit a deposit to the freeholder (either equivalent to 10% of the lease valuation offer or £250, the higher of the two) and within 14 days.
7. Negotiate Premium: try to reach an agreeable premium if your initial offer is not accepted.
8. Apply to Tribunal otherwise: if no agreement can been made between the parties, then the First Tier Tribunal (Property Chamber) can establish an agreeable premium.
9. Obtain Mortgage Consent: if there is a mortgage, secure consent from the mortgage lender and arrange for signing of a Deed of Substitution.
10. Register Lease Extension: after approximately 6 months the lease is registered with Land Registry.

Typically the entire lease extension process takes 6 12 months, but it may stretch longer if there are any disputes over the terms. So, to ensure an efficient journey, it is advisable to choose experienced professional advisors who can assist and those include solicitors and surveyors.

The Leasehold Valuation Tribunal (LVT), now known as the First-tier Tribunal, acts as a judicial body resembling a small court.

During a hearing representatives from both the leaseholder and freeholder state their case with evidence derived from surveyors. Thereafter, members of the Tribunal review the submitted evidence and make a decision accordingly. It is worth noting that the Tribunal has jurisdiction over the following aspects of disputes:

• Compensation: how much needs to be paid by the landlord (freeholder).
• Costs: assessing whether costs incurred by the landlord are reasonable and should be recovered from the tenant (leaseholder).

The primary role of the Tribunal is to provide a platform for resolving conflicts between landlords and tenants. This process aims to resolve disputes that can not be settled via negotiation.

When you extend a lease the leases value goes up while the freeholds value goes down. This difference in value, especially when the lease is short, leads to a profit called "marriage value."

Marriage value refers to the increase in the lease worth, which typically exceeds the decrease in the freehold worth.

When a lease has less than 80 years remaining then 50% of the marriage value must be paid by the leaseholder to the freeholder upon extending the lease. However, if there are still 80 years or more left on the lease then there is no obligation for the leaseholder to pay it.

From a financial perspective it makes sense to start proceedings for extending a lease before its remaining term drops below 80 years. This way the leaseholder can avoid paying costs associated with marriage value and maximise their gains from extending their lease.

Provided you meet the qualifying criteria, you have a right to pursue a statutory lease extension under the Leasehold Reform Housing & Urban Development Act 1993.

Ordinarily, holding ownership of the property for a minimum of 2 years and possessing a long lease means you should have the right to extend and the freeholder is obligated to comply. If your freeholder proves uncooperative or does not respond to your attempts at communication, there is legal recourse to enforce your rights. In such cases, you can instruct your solicitor to serve a Tenant’s Notice and commence proceedings.

This means that leaseholders can collectively take over management of the building instead of the landlord. You will be able to decide on how the property is run (e.g. services, maintenance and repairs).