Extension of Unexpired Terms of Residential Leasehold Flats

Traditionally leases of flats are granted for 99 years. Mortgage lenders are reluctant to lend in respect of leasehold interests with unexpired terms of less than 80 years so it is sensible to extend the term.

Leaseholders can approach their landlord to agree on terms of a lease extension, but the landlord may only grant a new lease on terms which suit them – perhaps for less than 90 years with a stepped increase in ground rent.

It may be more attractive to follow the statutory route under the provisions of Part I Chapter II of the Leasehold Reform Housing and Urban Development Act 1993. This can provide an additional term of 90 years at a peppercorn rent and broadly speaking under the same terms as before. In this process, the leaseholder is liable to pay the reasonable costs of the landlord’s valuer and solicitor.

The first step is for the leaseholder to ascertain the approximate price to be paid for the 90-year extension. This is fixed by a statutory formula. An internet search may assist in fixing a ball park figure, but there is really no alternative but to engage an experienced valuer to advise.

Once the valuation report is obtained, a solicitor will prepare and serve notice. The landlord will have 2 months in which to instruct his own valuer and serve a counter-notice.

After service of the counter-notice, there will be negotiations between the respective valuers to fix the price, unless the leaseholders offer is accepted.

If no price is agreed after 6 months from service of the counter-notice, an application to the First-tier Tribunal is made for a determination. Each side is obliged to pay their own costs of this referral. This step alone tends to result in the parties reaching a compromise before any hearing.

The landlord’s solicitor will draft a new lease (the process is for there to be a surrender of the existing lease and the grant of a new lease) which the leaseholder makes sure is suitable and complies with the statutory provisions.

If the leasehold interest is mortgaged then under the statutory procedure, the mortgage will automatically be registered against the title of the new lease without the involvement of the lender. Note, however, if the non-statutory route is followed the lender and leaseholder must enter into a deed of substituted security to switch the mortgage from the old lease to the new lease.

Once the price and terms of the new lease are agreed, the leaseholder pays the price and landlord’s costs; the new lease will be completed, and the leaseholder’s solicitor will arrange for registration of the new lease at the Land Registry.

Please note that these notes should not be relied upon as legal advice or interpretation and application of the law to particular circumstances or matters.

The material in these notes has been designed solely for the purpose of giving general guidance. The material does not stand on its own and is not intended to be relied upon for giving specific advice.

To the fullest extent permitted by law, Gisby Harrison will not be liable by reason of any breach of contract, negligence or otherwise for loss or damage (whether direct or indirect) occasioned to any person acting or omitting to act or refraining from acting on these notes or any error or omission in the notes.

Loss and damage as referred to above shall include, but is not limited to any loss of profits or anticipated profits, damage to reputation or goodwill, loss of business or anticipated business, damages, costs, expenses incurred or payable to any 3rd party (in all cases whether direct or indirect) or any other direct or indirect loss or damage.

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