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Things you need to know about lease extensions

Things you need to know about lease extensions

When it comes to extending their leases, many tenants are faced with the dilemma – accepting the landlord’s offer for a lease extension outside of the parameters of the Leasehold Reform, Housing and Urban Development Act 1993 (“the 1993 Act”) or pursuing their statutory right to a lease extension pursuant to the 1993 Act.

Both avenues have their pros and cons. Part one of this blog will focus on the statutory route to extending a lease and Part two will offer an insight on what is known as an informal or agreed route to extending a lease.  

s.42 Notice of Claim

Not every tenant can apply for a lease extension pursuant to the 1993 Act. Only tenants who have been registered proprietors of the flat for more than two years have the right to claim a statutory lease extension.

The process starts with service of what is known as a notice of claim pursuant to s.42 of the 1993 Act (“the Notice of Claim”) on the landlord. The 1993 Act allows the tenant to claim:

  • 90 years in addition to the unexpired term of the existing lease;
  • at a peppercorn rent (i.e. no ground rent payable);
  • on the same terms as the existing lease, subject to minor modifications and certain statutory exclusions and additions.

The Notice of Claim will contain a premium that the tenant is willing to pay to compensate the landlord for the grant of the extended lease. The premium is calculated by a specialist RICS valuer.

The Notice of Claim will give a deadline to the landlord to respond with his proposal for a premium payable as well as any other terms he wishes to be included in the new lease.

Counter-notice

The landlord must respond by the deadline given in the Notice of Claim and state if he :

  • admits the tenant’s right to a new lease and accepts the terms in the Notice of Claim or
  • admits the tenant’s right to a new lease but does not accept the terms in the Notice of Claim and proposes alternative terms; or
  • does not admit the tenant’s right to a new lease and gives his reasons why.

Agreement of terms

Following service of the Counter-Notice, both the landlord and the tenant will  instruct their respective valuers to negotiate the premium payable for the new lease. Once the premium is agreed, the draft lease is prepared by the landlord and served on the tenant who has to return the draft with any amendments. There is a further period for the landlord to make further amendments following which the lease is deemed approved and the new lease will be completed.

If an agreement cannot be reached either on the premium or the terms of the new lease , the tenant is entitled to apply to the First-tier Tribunal (Property Chamber) for determination.

The statutory process may take  from 6- 12 months but the end result is a long lease with no ground rent. There are number of benefits to the tenant, such as;

  • likely increase of the market value of the flat;
  • certainty of reasonable premium;
  • set timescale for reaching an agreement and completing the lease extension;
  • not being left at the whim of the landlord and
  • no new onerous terms can be imposed by the landlord.

For advice 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. 

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