Tenants: A Guide to Lease Extensions

18th March 2024

Is extending your flat lease a daunting prospect?

We often receive enquiries from clients who feel daunted at the prospect of extending their lease on a leasehold property and are unsure how to kick start the process. In this article Residential Property Solicitor, Melanie French, provides a quick guide to lease extensions for tenants in respect of flats as the law currently stands.

How to start the process of extending a lease

There are two ways of extending your lease; on a voluntary basis or on a statutory basis:

Voluntary Lease Extension

The first thing to note with a voluntary lease extension is that there are no rules about who does what and when. Either party can approach the other to start enquiries about extending the lease, and any price can be put forward in the first instance. As the name implies the parties are free to agree whatever terms (or not), by whichever methodology, they see fit. However, the example we have set out below is not an uncommon way of proceeding:

In the first instance, contact is made with the landlord to ascertain whether they are willing to grant a lease extension and on what terms.

If the landlord is willing to grant a lease extension, then in order to ascertain the terms, the landlord usually appoints a surveyor to carry out a valuation. The landlord will often request that the tenant pays the surveyor’s fees in advance.

Once the valuation has been conducted, the landlord will confirm what terms they are willing to grant a lease extension on i.e. the premium payable, length of term to be granted and any other amendments/additions to the existing lease.

Both parties instruct solicitors once terms have been agreed who will then take the matter forward. The tenant will usually be liable for the landlord’s legal fees.

Under the voluntary route, there is no requirement for the tenant to have been the registered proprietor of the property for a particular length of time, nor any restriction on the length of the term to be granted. However, the landlord cannot be compelled to grant a lease extension on a voluntary basis; this can only happen by following the statutory route.

The statutory procedure tends to be more complex, lengthy and costly than the voluntary route and tends to be employed if the landlord will not/cannot grant a voluntary lease extension (there are some instances where the statutory route must be followed), or where the terms offered are not agreed.

Statutory Lease Extension

Under the Leasehold Reform Housing and Urban Development Act 1993 (“the Act”), an eligible tenant can formally request a lease extension. Their lease must be a long lease i.e. one that was originally granted for more than 21 years, and they must have owned the property for at least two years There are some instances where a tenant meets these criteria but does not qualify for a statutory lease extension, for example if the landlord is a charitable housing trust and the flat is provided as part of the charity’s work, or if the lease is a business or commercial lease.

The term of the lease granted under the Act is 90 years plus the unexpired residue of the existing lease. No other length of term can be agreed under the Act.

To initiate the statutory procedure, the tenant must firstly identify the “competent landlord” i.e. the landlord whose interest in the property is long enough to be able to grant the 90-year extension. Often this will be the tenant’s immediate landlord, but not always. Some investigation by the tenant’s solicitor may be required.

The next step is to obtain a valuation. A reputable surveyor should be able to assist/provide guidance in this regard. Whilst there is no requirement to obtain a formal valuation, it is highly recommended as it will usually give the tenant a best case and worst case scenario, and tenant may need to rely on it for any subsequent proceedings.

The tenant’s solicitor prepares and serves a notice of claim on the landlord stating the terms on which the tenant wants the lease to be granted. The tenant becomes liable for the landlord’s reasonable costs i.e. legal and surveyor’s costs once the notice is served. The notice must give the landlord at least two months to serve their counter-notice.

In the interim, between the tenant’s notice being served and the counter-notice, the landlord can request a deposit which is 10% of the premium proposed in the tenant’s notice or £250, whichever is the higher.

The landlord’s counter-notice will either, admit or deny that the tenant had a right to claim a lease extension. If the landlord admits the claim, more often than not they will make counter-proposals regarding the terms requested by the tenant, usually requesting a higher premium.

There is then a period of negotiation whereby the respective surveyors negotiate the premium and the solicitors negotiate lease terms. If the premium/lease terms cannot be agreed, either party can make an application to the First-tier Tribunal no earlier than two months, but no later than six months , on from service of the counter-notice.

Once terms are agreed/determined, the parties then have a further two months to enter into the lease.

There are strict timelines to follow under the Act and failure to comply, can be detrimental to the defaulting party.

Leasehold Reform

The Leasehold and Freehold Reform Bill was announced in The Kings Speech in 2023. The draft legislation includes proposed changes, to, amongst other things, (i) make it cheaper and easier to extend a tenant’s lease; (ii) increase the standard lease extension from 90 to 990 years; and (iii) remove the requirement to own the property for two years before extending the lease.

We will look more closely at the proposed reforms in a subsequent article.

If you wish to extend your flat lease, please do contact the Residential Property team for a quote via info@kuits.com or 0161 838 7874.

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