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Current rules
The current rules state that if you are a leaseholder of a flat and have been occupying it for more than two years, you have the legal right to extend your lease for an additional 90 years with the ground rent becoming a peppercorn, i.e., nil.
In most cases, you will be expected to pay a premium to the freeholder to extend your lease.
If your property's lease has less than 80 years left, you will have an additional premium called a marriage value.
In this article, our property litigation team look further into leasehold reforms.
The new rules
The new rules, which, if implemented as the Government report suggests, will enable leaseholders to extend their lease by 990 years, the ground rate will be zero, and the marriage value will be removed from the premium calculation.
The report also suggests that the calculation for the premium will be less complicated with the formula including a discount for any improvements the leaseholder has made, a discount where leaseholders have the legal right to remain in the property and assured tenancy after the lease expires.
However, it is still unclear when the new rules will come into force and these are still subject to change.
Also to note, the Leasehold Reform Ground Rent Act 2022, which banned ground rent for new residential leases, is now in force.
How can I extend my lease now?
The Leasehold Reform, Housing and Urban Development Act 1993 (the 1993 Act) gives the leasehold tenants of flats the right to acquire a new lease on the payment of a premium subject to the fulfilment of the statutory criteria (the Formal Route) or by asking the freeholder to negotiate a new lease (the Informal Route). The exercise of this right is more commonly known as a lease extension claim.
Two processes are now available to leaseholders: the formal and informal routes.
Under the informal route, a leaseholder can approach the freeholder to ask whether they will negotiate a lease extension. The freeholder is not obligated to respond or even agree to the lease extension. If the freeholder does agree, the parties will negotiate.
Starting the process informally could save time and money. However, there are risks with going down this route, as the freeholder may only agree to extend the lease by including onerous terms in the lease or for a high premium.
The formal route, described further below, offers more protection for a leaseholder. However, there is a procedure and strict timescales that must be followed.
The right under the formal route is to add ninety years to what is left on the existing lease at a 'peppercorn rent', meaning no ground rent is paid. However, the landlord is entitled to a premium for extending the lease based on a formula set out in the 1993 Act.
Timescales
The procedure for extending your lease is set out in the 1993 Act and has strict timescales. The first step would be to serve a section 42 notice. However, to do this, you must have instructed a surveyor to determine the valuation, as the premium you believe is payable needs to be included in the notice.
Once the section 42 notice has been served, it has the consequences of you not being able to serve another notice whilst that one is in force. If the notice is withdrawn, no further notice can be given for 12 months.
You (and any joint leaseholders) should sign the notice. However, case law has suggested that you can authorise an agent to sign the notice. You can serve the notice in person or post it to the landlord's last known address in England and Wales.
The landlord must serve a notice in reply within at least two months after the service of the tenant's notice, which is referred to as a counter-notice.
Any landlord has the right to access the flat for valuation purposes, and they may require the tenant to pay a deposit and deduce title.
The landlord can ask for a deposit of greater than £250 or 10% of the premium or other sums payable as proposed in the tenant's notice.
If the landlord admits your claim in the notice in reply, the procedure to follow is governed by the regulations, which set out the conditions of sale. These apply as well to the negotiations to agree to the price.
First-Tier Tribunal
If the price and terms are not agreed upon between two months and six months after the service of the counter-notice, either party may apply to the First-Tier Tribunal for determination. The cost for submitting your application to the tribunal is £100, and the hearing cost (once you receive notice of a hearing date) is £200.
The tribunal's decision becomes final after twenty-eight days. Suppose you do not agree with the tribunal's decision. In that case, you can appeal to the Upper Tribunal (Lands Chamber) before the tribunal's decision becomes final, but only if the tribunal has permitted you.
After the tribunal's final decision, you and the landlord have two months to enter the new lease. If you decide not to enter the new lease within two months of the tribunal's decision becoming final, you have an extra two months to apply to the court to order the landlord to meet their requirements.
Should I wait for the new reforms even though I have started going through the statutory process?
Deciding whether to wait for new reforms would depend upon your circumstances, as there may be other factors influencing your decision to extend the lease, such as a sale of the property or remortgage.
You will also need to consider any costs that have already been incurred. If you withdraw, those fees will be payable at a later date. It is recommended to take valuation advice on that point.
Furthermore, as you have entered into a statutory contract with the landlord, you will also be liable for their costs.