Individual Lease Extensions

It may not be possible for leaseholders to seek enfranchisement or the right to manage:

• There may not be a sufficient number of leaseholders who wish to join in the group scheme;
• It may not be legally possible, perhaps because more than 25% of the building is devoted to non-residential use, as with a flat over a shop.

In those circumstances, a leaseholder may instead consider an individual lease extension.

Unlike an enfranchisement or right to manage claim, a lease extension claim is an individual right available to a flat owner whose lease was initially granted for at least 21 years.

The right is to extend the lease by 90 years, and at the same time to reduce the ground rent (but not service charges) payable under the lease to nothing, in return for payment of a price to the Freeholder. It confers no management rights on the individual flat owner.

If the lease has around 80 years to run, leaseholders are strongly advised to extend the lease without delay. If a lease has less than 80 years to run at the time when a lease extension is claimed, the price is increased by an additional valuation element called the “marriage value”. Marriage value will also increase the price payable by a group of leaseholders to enfranchise the freehold. In some cases, particularly where the length of the lease is significantly less than 80 years, the price payable is increased very substantially.

Does the leaseholder qualify to extend the lease?

• The lease must have been granted for 21 years or more initially.
• The leaseholder must have been registered as the owner of the flat for at least 2 years.
• There are special rules if the leaseholder is the personal representative (e.g. Executor) of a leaseholder who qualified to extend their lease at date of death.
• It does not matter whether or not the leaseholder lives at the flat, there is no residence requirement.

What is the lease extension procedure?

• The individual leaseholder must sign a Claim Notice setting out certain essential information about the flat and the leaseholder, and also the price that the leaseholder wishes to pay for the lease extension. We will work with the leaseholder in gathering together the necessary information and documentation and preparing the Claim Notice.
• The Claim Notice is sent to the freeholder.
• The Notice contains a response date by which the person who is legally capable of granting the leaseholder a 90-year lease extension, known as the Competent Landlord (this is normally the freeholder but sometimes a head landlord) must respond. That date must be at least 2 months after the date of service of the Claim Notice.
• The landlord serves a Counter Notice stating if they accept that the individual leaseholder has the right to extend their lease and, if so, what terms they agree and what they do not.
• There then follows a period of 2 months when the parties can try to negotiate terms by agreement through their valuers.
  If the landlord does not respond to the Notice of Claim, or responds late then the leaseholder is entitled to a lease extension on the terms set out in the Claim Notice. There is a procedure that can be followed to enforce this.
• If there are outstanding issues, the leaseholder must, within six months of the date of the landlord’s Counter-Notice, apply to the Property Chamber First Tier Tribunal (the Tribunal) for a decision on the terms which have not been agreed.
• The Tribunal will provide directions as to what documentation etc. it wants the parties to send to it, and will set a hearing date. The parties can continue to negotiate whilst this is going on.

What price is payable for a lease extension?

The price payable for the lease extension depends on a number of factors, including the market value of the flat and the length of the lease.

The price payable for the lease extension will be higher if the lease has less than 80 years to run, substantially higher if the lease has significantly less than 80 years to run.

Leaseholders should approach a valuer with expertise in the field to provide advice on a price before the Claim Notice is served. This is because, by law, the price in the notice must be “realistic”, so valuation advice is needed at the outset.

A valuer is also likely to be required by both freeholder and leaseholders for negotiations, and to give expert evidence to the Tribunal if agreement cannot be reached. At TWM, we have regular contact with specialist valuers, and will be pleased to place clients in touch with them.

What does the leaseholder acquire?

A 90-year extension of the length of the lease and reduction of the ground rent (not service charge) to nil.

Missing landlord?

If the landlord is missing, there is a separate procedure, involving a combination of the Court and the Tribunal, which enables the leaseholder to claim a lease extension even in those circumstances. Further details can be supplied on request.

What costs will be payable?

In addition to the price, there are certain fees that have to be reimbursed to the landlord. These include costs incurred in checking whether the leaseholder has the right to a lease extension, costs relating to in preparing and completing the next lease, and the costs paid by the landlord to a valuer for advice on the value of the lease extension.

The landlord cannot recover any costs from leaseholders in connection with the Tribunal application.

At TWM, we can handle the application, whether your are a landlord or leaseholder, details of charging rates and anticipated costs will be provided on request.