How Can A Leaseholder Extend Their Lease?

January 24, 2023
|In Property, LITIGATION
|By admin

There are two ways that a Leaseholder (Tenant) can extend their lease:

1) Privately Agreed (Informal) Route

2) Statutory (Formal) Route

 

Private (Informal) Route

The Tenant could approach their Freeholder (Landlord) to request whether the Landlord would be agreeable to negotiate a lease extension.   Although this private route could save time and money however, there is no obligation on the Landlord to respond or agree to extend the lease.

 

If in the unfortunate events that the negotiation discussion between the Landlord and Tenant come to an end without any successful conclusion then the Tenant could consider whether they are able to extend the lease under the Statutory Route.

 

It is important to note that privately agreed lease extension requires lender’s permission. Therefore, if there is a mortgage registered on the Tenant’s property then the Tenant must obtain the lender’s consent.

 

Statutory (Formal) Route

A Tenant can apply to extend their Lease by the Statutory Route provided that the Tenant is eligible (such as owned a long lease for the past two years).

 

The Tenant would need to ensure that they have their finances in place in order to commence the Statutory Route. This is because the Tenant would need to pay for the following:

  • Surveyor’s fees to value to a new lease and negotiations etc
  • a premium to the Landlord to extend the Lease (once a premium has been agreed)
  • Once the Tenant serves a notice to request for a new lease then the Tenant will be liable for the Landlord’s costs
  • Landlord’s fees to extend lease
  • Solicitors costs etc

 

The Statutory Route has strict timelines that the Tenant must comply with. If the Tenant fails to comply with the timescales then unfortunately the Tenant would have to wait 12 months before starting the Statutory Route again. There is no requirement for lenders consent under the statutory lease extension route.

 

Terms of the New Lease

Under the Statutory Rules, the Terms of the New Lease are as follows:

  • Peppercorn ground rent (£0 ground rent) for the whole of the term
  • 90 years extension plus the length of time left on the current lease
  • Terms must be the same except for minor modification and exclusions allowed by law.
  • Premium payable for the new lease

 

S42 Notice – Tenant’s request for a new lease

Before a Tenant can serve a S42 notice, the Tenant would need to identify who the competent Landlord is.  The Tenant should apply to the Land Registry to find out who owns the Freehold Property and check who they pay their service charges and ground rent to.

 

If a Tenant pays ground rent and or services charges to a management company then all parties (Landlord and Management Company as well as any other relevant person) should be served with a copy of the S42 Notice.

 

The S42 Notice must contain certain information in order for it to be valid.  The Tenant must give the Landlord at least two months to give their counter-notice.

 

The Tenant should ensure that the S42 notice is protected by way of registration against the competent Landlord’s Title and also of any intermediate Landlord.  Failing to protect the initial notice will not bind a purchase of any reversionary interest in the property and therefore, the Tenant will have to start the process again.

 

S45 Notice – Landlord’s Counter Notice

The Landlord must serve their counter-notice within the 2 months period.  The Counter-notice must state one of the following:

  • Agree to the Tenant’s right to a new lease and accept the terms and proposed or propose different terms
  • Reject to the Tenant’s right to a new lease and explain their reason for this.It would then be up to the Court to decide whether the Tenant has the right
  • Claim that the Landlord has the right to redevelop the land (appliable only in certain circumstances)

 

If the Landlord has served a Counter-notice then it would be down to the parties surveyors to negotiate on a premium.  If in the unfortunate event that an premium cannot be agreed after the first two moths of negations, then both parties can apply to the Tribunal for an independent decision to be made.  The application must be made within 6 months from the Landlord’s counter-notice.

 

Once a premium has been agreed then the parties legal representatives can negotiate on the terms of the lease.  There are strict timelines on when the new lease terms must be agreed and when a claim must be made to the Tribunal.

 

In the event that the Landlord fails to serve a counter-notice, then the Tenant has the right to apply to the Court to seek an order for the grant of the new lease (on the terms as set out in the S42 Notice). This application must be made within 6 month from the date in which the counter-notice was required to be served.

 

If you are thinking of extending your lease or have any queries, please contact us. Our experienced property solicitors and litigation team have dealt with different types of lease extension.