Financing Your Lease Extension
Many tenants commence the process of lease extension, whether pursuant to the Leasehold Reform, Housing and Urban Development Act 1993 or by voluntary agreement with their landlord, without having a clear understanding on how they will raise the funds to pay for the lease extension.
The most common way to raise funds is by remortgaging the flat. The stumbling block is when to commence the process.
When the tenant chooses to serve a notice of claim for a statutory lease extension pursuant to the Leasehold Reform, Housing and Urban Development Act 1993, they immediately become liable for the landlord’s legal and valuation costs. Although the landlord’s costs must be reasonable, the tenant is liable for them even if they decide to withdraw the claim for a statutory lease extension. If the tenant proceeds with the claim and agrees the premium and costs with the landlord, there is a statutory deadline of four months during which the lease extension must be completed. If it is not, the tenant will have to incur further costs for issuing a protective claim in the county court or withdraw from the process completely and lose their right to extend the lease for another twelve months.
With voluntary lease extensions, most landlords offer lease extension terms which require that the new lease is completed within a specified period, normally four to six weeks. The tenant is also liable for the landlord’s legal and valuation costs, usually payable upfront. Once the new lease is prepared, the landlord will expect the payment of the premium within this short period before they sign and complete the lease.
Against these deadlines, there is an urgency of having the funds to pay for the process, whether statutory or voluntary. In order to estimate the costs and premium, the tenants are advised to seek professional legal and valuation advice before they embark on this journey.
Ideally, if the tenant funds the lease extension by way of remortgage, the remortgage should be completed before the lease extension process has started. Some lenders, however, insist on lending the funds only when the newly extended lease is registered. This means that the tenant will need to obtain funds from different sources in order to pay the landlord for the grant of a newly extended lease. The registration of the new lease can take up to four months, leaving the tenant in a great difficulty of returning borrowed funds.
Tenants are advised to clarify with their potential lender whether the remortgage funds will be released prior to completion of the lease, rather than seeking remortgage after the process of extending the lease has commenced. This will avoid unnecessary frustration during what can be a long and arduous process of extending their lease.
If you are thinking about extending your lease and would like some advice, please get contact Polja Atkins.
Please note the contents of this blog are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.