There are two approaches to obtaining a lease extension from the freeholder: by serving a formal statutory notice once the property has been owned two years or more (under s42 of the Leasehold Reform Housing and Urban Development Act 1993) or an informal request, often sought when the property has been owned less than two years (but not necessarily) and therefore falling outside the 1993 Act.SERVING A FORMAL NOTICEThe serving of a s42 Notice of Claim on on the immediate landlord (i.e. the freeholder who will have the sufficient superior interest in the property to be able to grant it) is phase 1 of the extension process.
However it is important to remember that the freeholder is only ever obliged to grant the 90 years where a formal Notice is served.
Note: Whilst it is not a legal requirement to hire a solicitor to serve the required notice on the landlord, it is advisable to do so.Contents of the s42 NoticeThe notice must contain the following:
When a statutory notice is served the terms are restricted by the 1993 Act making negotiations quicker and simpler.
LEASE TERMSThe following information was sourced from the article 'When Does A Straightforward Lease Extension Become Less Straightforward?' written by Leasehold Life guest contributor Katie Cohen, Partner at Child & Child Solicitors. Under s57 of the Leasehold Reform, Housing & Urban Development Act 1993 (terms on which a new lease is to be granted) a statutory lease extension is to be granted on terms as follows:
Whilst other terms contained in the existing lease remain the same, certain variations can be requested because s57 of the 1993 Act allows the amendment of clauses that render the existing lease as defective. This is not the same as changing the terms in the lease because they will fall outside the statutory requirements and are therefore not permitted under the Act. Whilst they would be permitted under a voluntary (informal) lease extension it is important to remain aware that the inclusion of any additional recommendations might not be agreed by the leaseholder because they do not fall under the leasehold reform legislation.VALUATIONThere are 3 elements that comprise leasehold valuations: ground rent, loss of vacant possession at the end of the term and marriage value.The first two are payable in all lease extension claims, but the third is only payable if there are 80 years or less remaining on the lease term. If this is the case then the extension will be more expensive. Marriage value is the potential for increase in the value of the flat arising from the grant of the new lease. It is required that this 'profit' be split 50/50 between landlord and leaseholder. Vaulation ConsiderationsUsing a lease extension on my block as an example, there were three flats taken into consideration (although the third one was ignored):
The remaining sales values were averaged (to include the adjustment for the smaller flat) to arrive at a value of £84,950 for the subject flat which was 21% more than the repossessed flat.The value was reduced however because of the Act Rights which at this length of lease was around 8%. This gives an adjusted value of £78,150 which is 11% more than the repossessed flat and has considerable credence considering that a mortgagee in possession cannot serve a notice under the Act. £78,150 was therefore taken as the value of the existing lease of the subject flat. Various graphs were used to calculate the value of the landlords reversion which range from 81.30% to 88.50%. The average of 84.15% was taken, giving a freehold reversion value of £92,700.Other ParametersThe other parameters of a valuation are the capitalisation rate and the discount (deferrment) rate but the former was of little relevance due to the low ground rent. The usual discount rate is 5% as per the Sportelli decision but in the case of Zuckerman v Calforth Estates in 2009, the Lands Tribunal determined a rate of 6% to reflect locality, obsolescence and potential management difficulties, all three of which can be theoritically applied here and so the 6% rate has been adopted.The realistic figure for a lease extension was ultimately fairly represented by the sum of £9,072.WHY EXTEND?The main reasons for lease extensions is that leases lose their value as the lease term decreases. Mortgage lenders are also unwilling to lend on short leases and not all leaseholders will want (or be able) to take part in collective action such as buying the freehold. Lease extensions also reverse the property's loss of capital value and make it far more likely to reach it's true market value.Leaseholders CostsUnder s60 of the 1993 Act, where a notice is given under s 42, the leaseholder is liable for the reasonable costs (of) and incidental (to):
While this website is constantly checked and updated for accuracy, the information and articles provided by Leasehold Life and it's guest contributors are not to be construed as legal advice.
We have 20 guests and no members online