By Simon Tye, Legal Adviser
There are two routes a leaseholder of a flat can consider when thinking about extending the length of their lease. These are the “informal route” and the “formal” statutory route. The informal route is where the leaseholder simply contacts their landlord (usually the freeholder) to try and negotiate a lease extension. There are no rules if the leaseholder uses this route and the landlord could refuse to extend their lease, or could ask whatever price they like for doing so. However, it is sometimes possible to agree the terms of a lease extension in this way and it may well be cheaper in respect of legal and surveyors cost (your own and the landlord’s) than going down the statutory route. The process can also be quicker using this route.
The lease term, ground rent and costs can be whatever is agreed between the parties, but it is still advisable for the leaseholder to have valuation advice from a surveyor and also legal advice from a solicitor on the potential new lease.
If agreement cannot be reached informally, the leaseholder has the option to go down the formal, statutory route, provided they qualify.
The statutory route is under the Leasehold Reform Housing & Urban Development Act 1993 (as amended). Provided the leaseholder has owned the flat for two years the right is to add 90 years to what is left on the present lease at a “peppercorn” rent, which means no ground rent.
There is a formula in the Act, which a surveyor, who specialises in this area, can use to calculate an estimate of the amount you may need to pay to extend your lease. This is the price you will put in your formal application to be served on the landlord called a “section 42 notice”.
The formula in the Act is complicated but, basically, the shorter the lease the more expensive it will be to extend. A pivotal date is 80 years, once the lease has fallen below this the cost increases due to the leaseholder having to pay something called “marriage value” to the landlord.
It is advisable to use a solicitor to draft and serve the section 42 notice on the landlord, who then has not less than two months to serve a counter-notice. The counter –notice will state whether or not he accepts you have the right to extend your lease and whether he agrees your price or wants more, based on his own valuation.
If the landlord accepts you have a right to extend your lease but disputes the price then, not earlier than two months after the counter-notice, either party can apply to the First Tier Tribunal (Property Chamber) or the Leasehold Valuation Tribunal (in Wales) to determine the price. If you have not agreed terms, or applied to the Tribunal, within 6 months of the date of the counter notice, you will be deemed to have withdrawn your notice. You would then have to wait a further 12 months before you can serve another.
The leaseholder is required to pay the landlords reasonable legal and surveyors costs associated with the granting of the extended lease. This will normally be the cost of the landlords surveyor’s valuation and his solicitor’s charges associated with the receipt of the section 42 notice and the conveyancing process. If there is a dispute over the reasonableness of these costs, it can be referred to the Tribunal to determine.