Statutory lease extensions - a short guide

When you purchase a leasehold property, you acquire a lease that permits you to occupy a property for a prolonged period. Following the expiry of the lease, the landlord or freeholder is entitled to regain possession of the leasehold property.

This means that as a lease approaches its end, it can become difficult to sell your property. Additionally, most banks will not lend if the lease has fewer than a certain number of years remaining, significantly reducing the number of potential purchasers.

Luckily for the qualifying tenants, English law allows them a right to apply to their landlord or freeholder to extend the lease by 90 years plus the remaining terms under the Leasehold Reform & Urban Development Act 1993 (“the Act”).

Here, Joana Daraskeviciute, a solicitor and specialist in this area of law in our dispute resolution team, gives an overview of the issues to consider and steps you can take.

The tenant’s notice - assigning the benefit?

Where you are looking to buy a property with a shorter lease, you may want to consider getting the current owners to start the process of a statutory lease extension and assign the benefit of their notice to you. That is something that has to be done absolutely correctly, or you will not gain the benefit and have to wait a further two years.

The tenant’s notice

A qualifying tenant can serve a notice pursuant to the Act, notifying the landlord of their intention to exercise their statutory right to extend their lease. The notice requires tenants to confirm the premium payable (usually determined by a valuer) and other necessary terms. Once the notice is served, the tenant becomes liable for the landlord’s reasonable legal costs and disbursements. For a good overview of what is involved in the process, see the Leasehold Advisory Service’s website.

The landlord’s counternotice

Once the notice has been served, the landlord must respond within the period set out in the tenant’s notice and state whether he agrees that the tenant has the right to extend their lease and whether the proposed premium and terms are agreed.

Negotiations

There is then a period for negotiations during which time the tenant’s and landlord’s valuers will try to reach an agreement on a price, and the respective solicitors may negotiate on the terms of the new lease.

New Lease

The general terms of the new lease are set by law. There must be a peppercorn ground rent, and as set out above, the term is the current unexpired term plus 90 years.

Tribunal

If an agreement cannot be reached, the tenant can apply to the First Tier Property Tribunal, which will determine the premium to be paid and any other terms in dispute.

Time Limit

There are strict time limits in relation to this process. If the application is not made in time, the tenant loses their right to a statutory lease extension, is liable for the landlord’s legal costs and disbursements, and has to wait at least 12 months before serving another notice. It is therefore important that you and your legal adviser keep an eye on the time limit.

Statutory lease extensions is a very complex area of law, and we therefore invite you to contact our lawyers for further information. For advice contact us via the form on this page or telephone on 01843 234000 or 01227 813400.