When tenants first acquired the right to extend their flat leases under the Leasehold Reform, Housing and Urban Development Act 1993 (Act), there was a perception that this was not as attractive as the other right created by the Act, to collectively acquire the freehold title to the building in which the flats are situated. However, lease extension claims are generally quicker, simpler and the right is more readily available than the right to collectively enfranchise.
So, lease extensions are an important right but it is a technical area, fraught with traps for the unwary.
- Get the notice right – in order to begin a lease extension claim a formal notice needs to be served under the Act specifying the terms on which the tenant is entitled to a new lease. The notice should be served by a specialist. There are various technical requirements for a valid notice and getting these wrong can mean that a tenant is unable to claim a further lease extension for a period of 12 months. Given the value of the premium is fixed as at the service of the notice, this can be a disaster in a rising market.
- Know your value – there is a mechanism in the Act for calculating the premium payable for the lease extension (albeit there is always a margin of difference between valuers) and the premium proposed by the tenant must be included in the notice. The landlord then serves a counter notice proposing its premium and if the parties cannot agree this by negotiation, it will be determined by the First Tier Tribunal. However, a tenant cannot simply guess or put in a low offer as a negotiating tactic: the courts have decided that a tenant’s proposal in its notice of claim has to be realistic. This is because if the landlord does not serve a counter notice the tenant has the right to ask the court to grant a lease on the terms in its notice. So, before launching its claim a tenant should retain a valuer who is an expert in this sort of valuation and who will recommend the level of premium to include in the notice.
- Registration and deadlines – once served, a notice must be registered on the landlord’s title. If not, a purchaser for value will take free of the lease extension claim. Once the notice is served there are various deadlines with which the parties need to comply, failing which the tenant will have been deemed to have withdrawn its claim. A specialist adviser will be familiar with these issues and will be able to manage this process.
- Know your property – a notice needs to be served on the existing freeholder and intermediate landlords as well as any third party to the lease, if they are still involved in the management of the property. The more information the tenant has about the parties involved in the running of the building and their addresses, the better.
- Buyers beware – it is not uncommon for investors in particular to buy flats with short leases, but a buyer who buys a short lease will have to wait two years from the date he is registered as the owner until he can begin a claim for a lease extension, during which time the premium payable will almost certainly increase. The way to avoid this is for the seller to begin the claim and for the claim to be assigned to the buyer on the assignment of the lease. However, it is vital that the buyer ensures the seller has provided all relevant information about the property and the assignment of the notice takes place at the same time as the assignment of the lease.
For further information, please contact:
Amanda Hado-Bodfield, Partner, Fladgate LLP (firstname.lastname@example.org)