What is a Statutory Lease Extension?

The statutory lease extension process for flats is going through a period of reform. In order to understand the reform, it is important to understand what the current process is.

What is a lease?

Leases are, what is known as, a diminishing asset. This means that they are granted for a set number of years and the term decreases year by year. The number of years the lease is granted for or the numbers of years remaining at any time is known as ‘the Term’ of the Lease.  This decrease in the Term has an effect on the value of the property, particularly once the length of the lease reaches 80 years or less and it can be affected from around 85 years.

Once a lease Term falls below 85 years in length, Leaseholders may start to experience trouble in re-mortgaging their property as many lenders require leases to have a minimum number of years above 85 years remaining. Leaseholders may also experience trouble in selling their property to a prospective buyer. In both cases, seeking a lease extension will increase the length of the lease Term and remove this as a potential issue.

How do you extend a lease?

The law enables qualifying Leaseholders to extend their lease on set terms, in return for paying the Landlord a premium.

The criteria to qualify for a statutory lease extension are:

• The property is a flat;
• The lease had a term of more than 21 years when it was originally granted;
• If the property is a shared ownership lease it has been staircased to 100%; and
• The Leaseholder has been registered as owner of the property for over two years.

The set terms for a statutory lease extension are:

• Adding 90 years to the existing lease term;
• Reducing the ground rent to a peppercorn, which is generally considered to be £0 or £1; and
• Minor modifications, corrections, and updates as necessary.

What are the steps in extending a lease?

The key steps for the statutory lease extension process are dictated by the timetable in the relevant law. Once the process is started by service of a Notice on the Landlord, the timetable must be followed. If a key step is missed there can be legal and cost consequences for the defaulting party.

The key steps are:

• Preliminary assessment of whether or not the Leaseholder qualifies under the Act.
• Preparation of a lease extension premium survey to assess the potential premium payable.
• Service of the Notice by the Leaseholder upon the Landlord and other parties to the lease or any other applicable parties (for example if the proposed new lease term would extend beyond the term of any leasehold interest held by the Landlord under a leasehold interest between them and their Landlord, a notice should also be served upon their Landlord and so on), specifying:
  • the terms of the requested lease extension; and
  • giving the Landlord at least two months to reply.

• Service of the counter notice by the Landlord on the Leaseholder, either:
  • accepting the right to extend the lease and the proposed terms;
  • accepting the right to extend the lease and disputing the proposed terms; or
  • disputing the right to extend the lease.

• Negotiation over any disputed terms of the lease extension.
• Documenting the agreed terms in a written lease extension document.
• Completion of the Lease Extension and registration with the Land Registry.

The parties have six months from service of the Counter Notice to agree the terms and complete the lease extension. If this cannot be done, either party can apply to the First-tier Property Tribunal after the first two months to have the outstanding issues decided. If, in the Counter Notice, the Landlord disputes the right of the Leaseholder to extend the lease, the Leaseholder can challenge this by applying to Court. The application must be made within two months of the date of the Counter Notice.

What are the costs for extending a lease?

Once the Leaseholder serves the Notice, they become liable for the Landlord’s reasonable legal and surveyor costs. They also become responsible to pay to the Landlord a deposit of 10% of the premium set out on the Notice.

As a result, the potential costs for a Leaseholder for the statutory lease extension process are:

• Premium for extending the lease;
• Stamp Duty Land Tax (if the premium is over £40,000);
• The Landlord’s legal and surveyor/valuer costs;
• The Management Company and any other applicable party’s legal costs; and
• The Leaseholder’s legal and surveyor/valuer costs;

Should I extend my lease with a statutory lease extension?

A statutory lease extension is a clear and defined process. When you start the process, you know with a high degree of certainty how and when it will end. However, because it is more defined, often the of all parties involved legal costs are higher, and it will usually take longer when compared to a voluntary lease extension.

A statutory lease extension is a personal right. This means that once it has been started it can be assigned to a prospective buyer. This works well in a conveyancing context as it allows the seller of a property to start the process and allow the buyer to complete it after the sale/purchase has completed. This saves a buyer from having to wait the two-year period to qualify for a statutory lease extension.

However, a statutory lease extension is also inflexible. Once it has been started it cannot be stopped without legal and cost consequences. It has a set timeframe to complete and the timetable cannot be deviated from. However, this inflexibility is also its greatest attribute. The binding of the parties to a strict timeframe means that the parties are forced to commit to completing the lease extension and not let it drag on indefinitely. It will therefore come down to the individual circumstances to decide whether a voluntary lease extension is right for you.

How Pinney Talfourd can help

Pinney Talfourd have experienced and specialist solicitors who regularly deal with the lease extension process, challenging extension claims, and representing clients in the First-tier Tribunal (Property Chamber).

We have established relationships with local surveyors/valuers who will be able to advise you on the premium payable and the best approach to take in negotiations.

We are experts in the field of enfranchisement and are committed to working with you to ensure you achieve the very best possible outcome.

Pinney Talfourd is an established member of the Association of Leasehold Enfranchisement Practitioners (ALEP). This means that we are trusted, accredited solicitors who can offer expert advice. It also means that we have access to a network of vetted professionals who we can assist with every stage of your matter.