This is Part 2 of The Lease Extension Guide, which will be useful for both long leaseholders looking to extend their leases, and landlords of residential property subject to such long leases. Part 2 will consider who qualifies for a lease extension, and how qualifying leaseholders can go about agreeing an extension with the landlord, and what the terms of the new lease might be.
To recap, Part 1 considered why a long leaseholder should consider extending their lease.
A leaseholder who has less than 90 years left to run on their lease should consider applying for a lease extension. Failure to do so could make the lease more difficult to sell or mortgage, and as the remaining term reduces, the premium payable for an extension will increase.
Who qualifies for a lease extension?
In order to be eligible for a lease extension, the leaseholder must have been the registered owner of the leasehold property at the Land Registry for at least 2 years, although the leaseholder does not need to have actually lived in the property for that period. If the property was part of a shared ownership scheme, the leaseholder must own 100% of it to qualify. Finally, the lease must have been for more than 21 years when it was originally entered into.
Assuming that the leaseholder satisfies the criteria, it is likely that they will qualify for a statutory lease extension. However, there can be circumstances where even though you may be a qualifying leaseholder, there may be another restriction that could prevent you from extending your lease.
How does a leaseholder go about getting a lease extension?
A leaseholder might seek to extend their lease on a voluntary basis with their landlord (an informal lease extension). This will only be a consideration if the landlord is a willing landlord and so the leaseholder will need to consider their experience with the landlord and its attitude towards lease extensions. Usually, leaseholders prefer an informal route as it appears to be quicker and cheaper for them, but in such a case the landlord does have more freedom with what lease terms to propose / the premium. The leaseholder will need to think carefully as to whether they are being offered a good deal and expert surveyors advice should be taken.
The alternative way for a leaseholder to get a lease extension is via the statutory route (a statutory lease extension) by serving a notice, this can take longer than the informal route.
The landlord is less protected on their legal costs with the informal lease extension route – the leaseholder could pull out at any time and unless the landlord has obtained some costs payment up front in the form of a deposit, they are likely to end up out of pocket. This isn’t the case on a statutory extension as the service of the notice makes the leaseholder automatically liable for the landlord’s reasonable costs.
What will the terms of the new lease be?
Assuming the leaseholder qualifies for a statutory lease extension then this entitles them to a lease on the following terms:
A new lease with a term of 90 years in addition to the unexpired term of years on your existing lease (i.e. if you have 81 years left on your lease then the new lease will be for 171 years).
A peppercorn (i.e. nil) ground rent. The Leasehold Reform (Ground Rent) Act 2022 (‘the Act’) has now put to an end ground rents for most new long residential leasehold properties in England and Wales.
All other terms of the new lease are to be identical to the existing lease save only for necessary modernisation.
The premium will be negotiated by the parties’ respective surveyors and it must be a fair market price.
Part 3 of The Lease Extension Guide will consider in more detail how a leaseholder can commence the statutory lease extension process and the consequences of serving the Initial Notice, and Part 4 will look at what happens after that.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.