Brady Solicitors’ lease and enfranchisement specialist, Lesley Brentnall, explains the different options available to leaseholders wanting to extend their lease.

Lease extensions – the statutory procedure

Under the Leasehold Reform and Urban Development Act 1993, qualifying* leaseholders can make an application to extend their lease. This is triggered by serving a Section 42 notice which, if successful (and the landlord has only limited grounds for refusal), enables the tenant to acquire a new lease with an additional 90 years added to the current non-expired term. It also reduces the ground rent to a peppercorn rate, i.e. zero. However, the cost of extending a lease can be high and this may be off-putting for leaseholders with limited means.

Firstly, there is the premium to be paid to the freeholder. The procedure for calculating the premium can be complex and the amount will vary from property to property, but it can be significant.

Added to this is the fact that you will need to cover your own legal fees, the costs of your valuer if you choose to appoint one to assist in advising on the amount to offer and, finally, the landlord’s legal and valuation fees.

The statutory procedure can, unfortunately, also be time consuming. Once the section 42 notice has been served, the Landlord then has two months to respond. The options open to him are:

1) agree the terms proposed

2) accept the tenant’s right but propose different terms, or

3) reject the claim

The usual response is to accept the tenant’s right to extend the lease but to reject the level of premium offered.

There then follows a period of time when the parties negotiate. Hopefully agreement can be reached but if this is not possible the only option then open to the tenant is to pursue a claim to the First Tier Tribunal (and this will of course incur further costs).

Provided a new lease is finally obtained, the time and expense is no doubt worthwhile as the lease extension will clearly enhance the property value and its saleability – but is there a less costly alternative?

The simple answer is ‘yes’, as it is always open to the leaseholder and landlord to follow the non-statutory or informal route,which is done by simple direct negotiation with the landlord.

Non- statutory or informal route to extending your lease

In this case the landlord is in a position to offer the leaseholder the ability to extend their lease for a lower premium, in some instances for a sum that is substantially less than that required via the statutory route.

In return, the Landlord would ask for an increased ground rent and perhaps offer the tenant a slightly shorter term.

This can be a better option for both parties if the leaseholder would struggle with the cost of a full statutory extension.

However, whilst you may be able to save on the fees and negotiate a reduced premium, you may end up with a much higher ground rent and so informed advice is essential to ensure there is no adverse impact on the saleability of your property.

Considering extending your lease?

Brady Solicitors can help you to weigh up the pros and cons of the statutory vs informal approaches, support you in your negotiations and help you to secure a successful lease extension.

Contact us for a friendly conversation about your options.

*Generally speaking, you will be a qualifying tenant if your lease had more than 21 years left when you bought the property and you have been the registered owner of your flat for at least two years.