Lengthening the lease

Nick Fancourt, Director at Thomas Legal, on the options for extending a lease when included in the sale of your property

"I own a flat that I am trying to sell and am being told that my lease is too short and is unacceptable to the buyer. Can you please let me know what my options might be?"

There are essentially two options for extending your lease as part of the sale of your property. Firstly by mutually agreeing the additional term of years, the proposed premium and any future ground rent with the Landlord directly.

How do I find out what I should pay for the lease extension?

In order to ensure you are both achieving a reasonable extension to the number of years left on the lease and also a fair premium for those years, it is imperative that you take the advice of a surveyor who can outline what would deemed to be “market value” in terms of cost for the increase in the term.

Once you have your numbers and have reached an agreement with the landlord, you should instruct your solicitor so that they can make contact with the landlord’s solicitor to agree the form of the new lease.

Can this be done during the sale of my property?

If you are selling the property then the sale will need to move in line with this work and you will either have to fund the premium and legal fees for the work ahead of the sale, if affordable. If not, the lease can complete on the same day as the sale of the property and if you have sufficient equity in the property, pay for the lease extension from the proceeds of sale. Of course, extending the lease as part of the transaction should mean you can achieve a better selling price in any event but you should carefully work out whether you can afford to extend the lease, prior to commencing any legal work.

What if the landlord wont negotiate with me to extend the lease?

The second method of extending your lease involves utilising the statutory method set out in the Leasehold Reform Housing and Urban Development Act 1993. Provided you have owned the property for a clear 2 years from the date of registration of the property in your name, you are entitled to extend your lease by 90 years on top of the existing term and also to reduce the ground rent to a “peppercorn”. As with negotiating the premium for the extension with the landlord directly, you will need to take early advice from a surveyor as to the likely cost of extending the lease by 90 years. This sum will then be entered into the notice to be served on the landlord.

What if the landlord doesnt respond?

Assuming the notice is served correctly, the landlord has 2 months from the date of the notice to accept the premium proposed or to serve a counter notice on your solicitor, stating the premium they require. In most cases the landlord will respond requiring a higher premium. In this instance, the surveyors will need to then negotiate and try to agree the premium for the new lease within a 6 month window. If the landlord doesn’t respond then the premium you have proposed would be binding on the landlord. If after receiving a counter notice the premium cannot be agreed within the statutory time period, you would need to apply to the Leasehold Valuation Tribunal for a determination on what should be paid for the lease. Applying to the Tribunal would of course lead to additional legal costs and surveyor’s costs being incurred.

It seems like this method might delay my sale?

The statutory process does take more time than a mutually agreed lease extension. However, once served, you can pass the benefit of the notice served on the landlord to the buyer as part of the sale by through a deed of assignment entered into on completion. The buyer can then carry on the process and take the benefit of your claim to a new lease after completion has taken place, allowing you to complete the sale without unnecessary delays.

Nick Fancourt started at Thomas Legal in 2010 as a legal assistant. After qualifying in 2013, Nick has worked his way up to become a Director of the business. He specialises in the London property market and in particular, leasehold transactions, lease extensions, SPV work and high value residential matters. In his spare time Nick likes to keep fit and he recently completed a half marathon in 1:42:00 followed by the London Marathon in 4:07:01. Nick’s other hobbies include travelling the world and his love for animals. To contact Nick, email nick.fancourt@thomas.legal or call 0207 1010 300. Visit Thomas Legal at www.thomaslegalgroup.co.uk