Leasehold Extension – Getting Started

The right to extend the lease of a flat under the Leasehold Reform Housing and Urban Development Act 1993.

Introduction

This leaflet is not meant to describe or give a full interpretation of the law, as only the courts can do that. And it does not cover every case. One of the drawbacks of owning a flat or maisonette on a long lease is that it reduces in value over time. The less time is left on the lease, the less valuable the property becomes. Because of this, the law gives the leaseholder (tenant) the right to extend their lease once they have owned it for two years.

The right is to add 90 years to what is left on the existing lease at a ‘peppercorn rent’. A peppercorn rent means that no ground rent is paid. For example, if the present lease had 70 years left to run, the new extended lease would be for 160 years.

The landlord is entitled to a premium (the price) for extending the lease, and this is based on a formula set out in the Leasehold Reform Housing and Urban Development Act 1993 (the 1993 act), as amended by any future acts that apply.

This advice guide explains your legal right to extend your lease. If you prefer, it may be possible to negotiate a lease extension with your landlord on whatever terms you can agree. If you decide to try to negotiate a lease extension, there are no rules and your landlord could refuse to extend your lease, or set whatever terms they like. For example, they may want to increase the ground rent as one of the terms.

Download a template informal letter enquiring about lease extension of a flat, or to purchase the freehold of a house or flat

If you are not able to agree a lease extension with your landlord, you would need to go down the statutory route that is the subject of this guide.

The formal procedure is started by the service of the Tenant’s Notice on the landlord (the Tenant’s Notice) and it then follows a prescribed route. Although this is the beginning of the formal process for acquiring the ninety year extension, it should follow a period of preparation to ensure that you are fully equipped and advised to complete the acquisition.

Before you start the procedure, you need to:

• check you are eligible (including by identifying the ‘competent landlord’);
• choose and instruct professional advisers (that is, a surveyor and a solicitor);
• assess the premium;
• make sure you have the money you will need to complete the procedure;
• gather the information you will need;
• prepare the tenant’s notice; and
• prepare for the subsequent procedures.

While the order in which you do the above tasks is a matter for you and your advisers to decide, you will need to have done them all before starting the procedure. Once you have served the tenant’s notice, the procedure will be running and you will be asked to provide information and meet deadlines. If you fail to do any of these things when asked, your application to extend the lease could be unsuccessful. You will be liable for the landlord’s reasonable, professional fees from the date you serve the tenant’s notice, whether or not your application is successful. The act states what costs the landlord can recover, and gives some guidance as to what is reasonable. (See section 60 of the act.)

Remember that if you apply to extend the lease, your application will be suspended if the other leaseholders make a joint application to buy the freehold using the collective enfranchisement procedure set out by the 1993 act. Similarly, you cannot apply to extend your lease while an application for collective enfranchisement is being considered.

Checking eligibility and starting the process

Qualification

Qualifying as a leaseholder

To be a qualifying leaseholder you must have owned a long lease for the past two years.

A long lease is, mainly, a lease which had an original term of over 21 years when it was originally granted. How long is left on the lease is not relevant. It is how long the lease was for when it was first granted that matters.

But, even if you meet these criteria, you will not be a qualifying leaseholder if either of the following applies.

• The landlord is a charitable housing trust and your flat is provided as part of the charity’s work.
• It is a business or commercial lease.

Starting the process

You start the process by serving the tenant’s notice (section 42 notice) on the ‘competent landlord’.

The competent landlord is the landlord whose interest in the property is long enough to be able to grant the 90-year extension – that is, their interest is over 90 years longer than the time left on your lease.

In most cases, the immediate landlord will be the freeholder, and so is the obvious person to serve your notice on. However, there will be cases when the immediate landlord has an intermediate lease which is too short to give you a 90-year extension.

This will not prevent you from extending your lease, but you will need to identify the competent landlord who has enough interest to grant the extended lease.

Instructing professional advisers

For a successful application, we recommend that you appoint a valuer and a solicitor. As well as being able to offer general advice, their roles include the following.

Valuer

• Providing the ‘best and worst’ case valuation, so they can tell you the possible outcome of the negotiations.
• Advising you on how much to offer in the notice.
• Responding to the notice the landlord sends in response to your notice (the landlord’s counter-notice).
• Negotiating and settling the price and other terms of the lease, including representing you at the tribunal.

Solicitor

• Preparing information for your application.
• Serving the notice on the competent landlord and giving any other landlords copies of the notice.
• Responding to the landlord’s requests for information to support your claim.
• Dealing with the legal process involved in buying the new lease (conveyancing).

You should make sure the advisers you choose have full knowledge and experience of the relevant legal practices and procedures.

Assessing the premium you should pay

The law does not say that you must have a full valuation in order to apply for a new lease, but we strongly recommend that you do not go ahead with your application without getting proper valuation advice.

Valuation is not an exact science, and it will be virtually impossible for the valuer to provide an accurate estimate of the final settlement figure. The valuer should be able to provide a ‘best and worst’ figure, valuing the lease from both your and the landlord’s perspective. They will also use their experience of properties in the local area to anticipate claims the landlord might make (including in response to your claim). There is no such thing as a definite, fixed price for a new lease and you should be aware from the beginning of the process of the likely range within which the price will be settled, so you are not surprised at a later stage.

When considering how much the premium is likely to be, you should also bear in mind that you will be liable for the landlord’s costs. The eventual cost of the new lease will be the premium, plus both your own and the landlord’s ‘reasonable’ legal and valuation costs (not including any costs which arise in connection with proceedings heard before a tribunal).

There are more details on assessing the premium you will have to pay in our leaflet ‘Lease Extension-valuation’. You can use our lease-extension calculator to work out an estimate of the premium.

Gathering information

Before serving the tenant’s notice, you or your solicitor will need to gather all the necessary information to:

• make sure the notice is correct and valid; and
• respond to any challenge from the landlord during the period after you serve the notice.

You will need the following information.

1. The identity of the competent landlord. This can be a person or a company, and you will need their name and address.
2. Details of any intervening or head leases, and the name and address of the relevant head leaseholders.
3. A copy of your own lease and documents which prove you own the flat (for example, Land Registry entries).

The competent landlord

In most cases this will probably be your immediate landlord if they are the freeholder or a head leaseholder with a lease which is at least 90 years longer than yours. However, in some cases your immediate landlord may be a head leaseholder with a lease that is only a few days, or a few years, longer than yours. If this is the case, you need to identify the landlord who has enough interest to grant you the new lease. To identify the competent landlord you will need to know the details (especially the length of their leases) of any intermediate landlords who may be between you and the freeholder.

You may already know some of this information, and you can get the rest in a number of ways, including those set out below.

The Landlord and Tenant Act 1985 (the 1985 act) – Under this act, you have the right to details of the name and address of your landlord. You can ask for this information, and it must be provided within 21 days. It is an offence to not provide these details if you ask for them. These details should also be on your ground rent and service charge demands.

Download a template letter requesting disclosure of landlord’s identity under Section 1 of the Landlord and Tenant Act 1985

A problem here is that your immediate landlord may not be the competent landlord for the purposes of the act. See below for how to find information on the freeholder or other intermediate leaseholders.

Land Registry – As long as the property is registered (most are) you are entitled to inspect the register and to receive copies of the entry relating to the freehold of your home. The entry will provide the name and address of the registered owner and details of any other interests in the freehold, including head leases and mortgages. There is a small fee for copies of the register.

There are a number of district land registries, and you should contact your nearest office to find the registry which serves the area your property is in.

Information notices – section 41 of the 1993 act gives you the right to serve notices on your immediate landlord, the freeholder (if different) or any other person with an interest in the property to ask for details of their interest.

This information would include the name and address of the freeholder or intermediate landlord, the length of the lease and details of the property the flat is in.

The people who receive the notices must respond within 28 days. Serving information notices does not formally start your application for the new lease or commit you in any way, and you will not become liable for any costs as a result of serving these notices.

Financing the lease

Before you begin, you will need to know how you will pay for the new lease. More urgently, you must make sure you can pay the solicitor’s and valuer’s professional fees. If you withdraw your application after serving your notice, you must pay the landlord`s reasonable legal and surveyor`s costs (and your own costs) up to the date you withdraw your application.

Preparing the tenant’s notice

The tenant’s notice triggers the legal procedures for buying the new lease and you are liable for the landlord’s reasonable costs from the date they receive it. So it is important that the notice is accurate and contains no mistakes because, although you can apply to the county court to have these corrected, there is a cost involved in doing this and you could avoid this expense. If the tenant’s notice is incomplete it will not be valid and the competent landlord can reject it.

If the ‘competent landlord’ is not the immediate landlord, you must serve the original notice on the competent landlord and send copies to the other landlords. The notice to the competent landlord should state who else you have given a copy to.

You can register the tenant’s notice with the Land Registry. This protects you if the landlord sells the freehold, as the procedure will be able to continue as though the new owner had received the original tenant’s notice.

Serving the tenant’s notice also fixes the ‘valuation date’ as the date of the notice. The valuation date is when any figures which affect the price and which can change are set, for example, the number of years left on the lease and the present value of the flat. So, however long it takes to negotiate or decide the price, the price will be based on the figures that apply on the date you serve the tenant’s notice.

We advise you to instruct a solicitor to prepare and serve the tenant’s notice.

The tenant’s notice

Under section 42(3) of the 1993 act, the tenant’s notice must contain the following.

• Your full name and the address of the flat.
• Enough information about the flat to identify the property the application relates to.
• Details of the lease, including its start date and the number of years for which it was granted.
• The premium you are proposing for the new lease or other amounts you are proposing to pay if there are intermediate leases involved (see the note below).
• The terms you are proposing for the new lease (if different from the present lease).
• The name and address of your representative if you have appointed one.
• The date by which the landlord must give their counter-notice, which must be at least two months from the date of the tenant’s notice.

Note: The premium quoted in the notice may not be the price that is eventually agreed following the tribunal’s decision or your negotiations with the landlord, but it will be the figure the landlord uses to calculate the deposit they will ask for. The premium you propose must be a genuine opening offer. Do not quote a very low figure in order to reduce the deposit, as the notice may not be valid if you do this.

Absent landlords

If, after all reasonable efforts, you cannot find the landlord, this should not prevent you from applying for a new lease.

• If the landlord is a company that is in receivership, you can serve the tenant’s notice on the receiver. If the landlord is an individual who is bankrupt, you can serve the notice on the ‘trustee in bankruptcy’. Both the receiver and the trustee are acting as landlord for the time being and, under the 1993 act, they must serve a counter-notice and grant the new lease.
• If you simply cannot find the landlord, you cannot serve the tenant’s notice. In this case, you can apply to the county court for a ‘vesting order’ to extend the lease. If the court is satisfied that you are eligible for a new lease, it will grant the lease to you in the landlord’s absence. The court will usually refer the case to the tribunal to decide how much the premium should be.

Application Form – Leasehold Enfranchisement: Missing Landlord – Lease Terms or Premium

Preparing for subsequent procedures

After you have served the tenant’s notice, the landlord can ask you for evidence that you own the flat and how long you have owned it for. The landlord has 21 days from the date you serve the tenant’s notice in which to ask for this evidence. If the landlord does ask for this evidence, you must provide it within 21 days, and you should make sure that your solicitor has all the information and documents needed to respond within the time limit. If you (or your solicitor) do not provide the evidence within the time limit, the landlord may serve a default notice and ask the court to order you to provide it.

The landlord also has the right to inspect the flat to carry out a valuation, but they must give you three days’ written notice.

Deposit

At any time after receiving the tenant’s notice, the landlord can ask you to pay a deposit. This may be 10% of the premium you proposed in the tenant’s notice or £250, whichever is more.

The landlord’s counter-notice

The landlord must serve their counter-notice by the date stated in the tenant’s notice. The counter-notice must do one of the following.

• Admit your right to the new lease and accept your terms (or propose different terms).
• Not admit your right and give the landlord’s reasons for this. The county court will then decide whether you have the right to the new lease.
• Claim the landlord has the right to redevelop. The landlord can refuse to grant the new lease if they can prove to a court that they intend to demolish and redevelop the building. This only applies to applications where the remaining period of the lease is less than five years from the date of the tenant’s notice.

If, after the landlord’s counter-notice is served, you and the landlord cannot agree on the price or some other aspects of the sale of the new lease, there is a negotiation period of between two and six months. After the first two months of the negotiation period you or the landlord can apply to the tribunal for an independent decision on the issue. If you decide to apply to the tribunal, your professional advisers must have all the relevant documents that will be needed for this.

Application Form – Determination of Premium or Other Terms of Acquisition Remaining in Dispute: Flats and Premises – Lease Renewal

If the landlord does not serve a counter-notice by the date stated in the tenant’s notice, you can apply to the court for a vesting order. This application is not for a court order requiring the landlord to serve the counter-notice, but effectively takes the matter out of the landlord’s hands by asking the court to grant the new lease. The court will grant the vesting order on the terms proposed in the tenant’s notice.

If you decide to apply to the court for a vesting order, you must do this within six months of the date when you should have received the counter-notice.

Assigning the application

Once you have served the tenant’s notice, it can be assigned with the lease. This means that you can serve the notice and then sell the flat with the benefits of the application. The person who buys the flat will be able to go ahead with the application immediately, without having to have owned the lease for two years. This can help in cases where there are not many years left on the current lease, and this presents mortgage difficulties for anyone considering buying the flat.

Personal representatives

If you have the right to buy a new lease, but you die before making an application, for up to two years following the grant of probate or letters of administration your personal representatives will also have the right to buy a new lease.

Terms of the new lease

You should be aware of the legal requirements for the terms on which the new lease can be granted. These are as follows.

• A peppercorn rent (that is, no ground rent) will be charged for the whole of the term (the 90-year extension plus how long is left on the current lease).
• The new lease must be on the same terms as the existing lease, apart from minor modifications and certain exclusions and additions that are allowed by law.
  1. Modifications – to take account of any alterations to the flat, or the building, since the existing lease was granted (for example, to gas lighting or coal stores), or to correct a problem with the lease.
  2. Exclusions – since the 1993 act provides a right to continuously renew the lease, any existing clauses relating to renewing the lease or ending it early, or the landlord’s right to buy the flat if you decide to sell it, should be excluded.
  3. Additions – a requirement not to grant a sublease which is long enough to give the subtenant the right to a new lease under the act.
• The new lease must contain a clause giving the landlord the right to repossess the flat if they decide to redevelop the land. They cannot exercise this right until the end of the term of the existing lease, and to do this they must apply to the court for permission and pay you compensation for the full value of the remaining 90 years of the lease. This should not cause any difficulties if you need to take out a mortgage on the flat.

You can get more advice and guidance from us at any time during the preparation stage or after serving the tenant’s notice.

Procedures and time limits

• You serve an information notice under section 41 of the 1993 act. (You do not have to serve an information notice.)
• The landlord must respond within 28 days.
• You serve a tenant’s notice under section 42 of the act.
• The ‘valuation date’ will be fixed as the date you serve the tenant’s notice.
• The landlord can ask for extra information, but they must do so within 21 days of receiving the tenant’s notice.
• You have 21 days to provide any information the landlord has asked for.
• The landlord must serve a counter-notice by the date stated in the tenant’s notice. This date must be at least two months from the date you serve the tenant’s notice.
• If the landlord does not serve the counter-notice by the date stated in the tenant’s notice, you must apply to the court for a vesting order within six months.
• After the landlord serves a counter-notice, you or the landlord can apply to the tribunal for an independent decision. You must do this no sooner than two months from, but within six months of, the date the counter-notice is served.
• The fee for applying to the tribunal is £100, and the hearing fee (once you receive notice of a hearing date) is £200.
• The tribunal’s decision becomes final after 28 days. If you do not agree with the tribunal’s decision, you can appeal to the Upper Tribunal(Lands Chamber) before the decision becomes final, but only if you have the tribunal’s permission.
• After the tribunal’s decision becomes final, you and the landlord have two months to enter into the new lease.
• If you and the landlord do not enter into the new lease within two months of the tribunal’s decision becoming final, you have a further two months to apply to the court to order the landlord to meet their obligations