Residential Lease Extension

The Leasehold Reform, Housing and Urban Development Act 1993 gives a statutory right to the leaseholder/lessee owner of a flat to extend the unexpired term of their lease by a further 90 years, with the ground rent reverting to NIL for the whole of the extended term. This right is subject to a number of qualifying conditions namely:

  • The property must be a flat
  • The leaseholder has owned their flat for at least 2 years
  • The lease had an original term of at least 21 years

Statute provides a methodology for calculating the premium to paid in order to secure the 90-year extension and this requires consideration of a number of elements including, the value of the ground rent currently payable and any provisions for it to be reviewed, the value of the leasehold interest both with its existing term and the extended term, the appropriate capitalisation and deferment rates to be used, and if any improvements have been carried out which fall to be disregarded.

It is especially important for leaseholders to act upon extending their lease before the unexpired lease term is 80 years or less as then an additional element called ‘marriage value’ is added into the premium calculation which pushes the price payable up.

Generally, the responsibility for complying with the statutory procedure rests with the legal advisers.

The valuer meanwhile, whether acting for the freeholder or leaseholder, may be asked to provide some or all of the following services:

  • to assist with the process by the provision of a preliminary report on the price or premium payable, typically arrange being given to give an idea of the scope for negotiation
  • the provision of valuation advice as to the amount(s) of any offer or counter-offer to be included in a notice of claim or counter-notice
  • undertaking negotiations to see whether the price or premium can be agreed and
  • in the final analysis the preparation and presentation of evidence to a First Tier Tribunal (Property Chamber) (F-tT) or, on appeal, to the Upper Tribunal (Lands Chamber) (UT).

The process can be followed informally by agreement, and this often happens, but the Statutory procedures do have the benefit of introducing time limits to drive the proceedings to a conclusion.

The 1993 Act also introduced the collective right of tenants in a block of flats to enfranchise, i.e., to buy the freehold, which if exercised would then give the participating leaseholders the ability to grant themselves leases of indeterminate length. Again, there are qualifying conditions and a statutory formula for calculating the price to be paid.

Less well known about in Devon, as there are relatively few occasions where it applies, is that the owners of long leasehold houses also have rights to extend their lease or to buy the freehold under the provisions of the Leasehold Reform Act 1967 Act (as amended). The methodologies for calculating the price to be paid are however more complicated than those for flats.

For advice and assistance from Carter Geering in relation to the above please contact Lloyd Smale FRICS, RICS Registered Valuer on 01363 773757, or by email: lloyd@cartergeering.com