Contact Our Property Litigation Team
Speak to one of our Property Litigation Team if you are thinking about extending your lease.
Homeowners may be aware that the Government is making it easier and, in some cases, cheaper to extend a lease.
However, we are unclear about when the reforms will take effect.
Under the current rules, you can either proceed under the informal route, whereby a leaseholder can approach the freeholder to ask whether they will negotiate a lease extension.
There is no obligation on the freeholder to respond or even agree to the lease extension.
If the freeholder does agree, the parties will negotiate the terms and amount to be paid for the lease extension.
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.
However, you can also proceed under the statutory route, which sets out that a leaseholder who has held the lease for the past two years is given a right by law to extend the lease by an additional 90 years, with the ground rent becoming a peppercorn, i.e. nil.
You will expect to pay a premium to the landlord to extend the lease, which is made up of an amount to cover the ground rent that will no longer be paid.
If the lease term is below 80 years, then an additional premium is payable, called the marriage value.
What are the proposed changes?
All leaseholders who can extend their lease will have the right to do so for up to 990 years.
Under the current legislation, leaseholders of flats can extend leases of flats for a 90-year period.
On the other hand, leaseholders of a house are only entitled to extend their lease once for a period of 50 years.
The marriage value will also be removed from the premium calculation, making it cheaper for those with a lease term below 80 years to extend their lease.
The premium payable to extend a lease will also be made simpler, and there will be an online calculator available to assist leaseholders to find out how much it will cost to extend the lease.
The formula for the premium will include a discount for any improvements the leaseholder has made and a discount where leaseholders have the right to remain in the property on an assured tenancy after the lease expires.
Another proposal is that some leaseholders will no longer have to cover the freeholder’s legal and valuation fees.
Furthermore, the leaseholder will not need to wait two years before being able to extend their lease, which is a current requirement.
When will the changes take place?
Unfortunately, there is no definitive timetable for when the Leasehold and Freehold Reform Bill will become law.
However, the bill is currently making its way through Parliament.
The Government has suggested that it might happen this year and would like it to occur before the next election.
However, there are no current proposals for it to come into force.
So, the question many leaseholders ask is whether you should extend now or wait for the changes to come into effect.
This would ultimately depend on your individual circumstances, as there may be a number of factors affecting your decision, for example, a sale of the property or whether you need to re-mortgage.
If a lease is under 80 years, then it may be difficult to sell or re-mortgage, which means it is necessary to extend your lease.
However, you will need to consider that a marriage value will be payable in addition to the premium.
How can Myerson assist you?
If you decide to extend your lease and proceed down the statutory route, then the first step is to serve a notice on your landlord.
We can prepare and serve the notice on your behalf.
We can also advise you on the landlord’s counternotice.
Thereafter, there are very strict timelines that need to be adhered to in order to ensure you do not lose your right to extend your lease.
We will note these dates and will undertake the relevant steps to protect your position.
This may involve issuing proceedings at the First Tier Tribunal if the parties are unable to agree on the terms.
Once the parties have agreed the terms for the lease extension (either under the voluntary or statutory route) our residential property team can review the draft lease, complete it on your behalf and register it at HM Land Registry.