Katie Cohen: Lease Extension Terms
Katie Cohen, a former Partner at JPC Law is now a Partner at Child & Child and is also a full member of the Association of Leasehold Enfranchisement Practitioners (ALEP).
Katie’s article focuses upon the terms of the new lease which has been modified during the course of the statutory lease extension and under s57 of the Leasehold Reform, Housing and Urban Development Act 1993 (“the Act”) is to be granted on the following terms:
- To be at a peppercorn ground rent (i.e. nil) for the entirety of the term of the new lease (i.e. an additional 90 years plus the present unexpired term);
- To be on the same terms as the existing lease, subject to minor modifications and certain statutory exclusions and additions:
(i) Modifications – to take account of any alterations to the flat, or the building, since the grant of the existing leases (e.g. reference to gas lighting or coal stores), or to remedy a defect in the lease.
(ii) Exclusions – since the Act provides a right to perpetual renewal of the lease, any existing clauses relating to renewal, pre-emptions or early termination are to be excluded.
(iii) Additions – a requirement not to grant a sublease of sufficient length as to confer on the sublessee on the right to a new lease under the Act.
- The landlord’s redevelopment right – the new lease must also contain a clause giving the landlord the right to repossession of the flat for the purposes of redevelopment. This right does not arise until the end of the term of the existing lease and is subject to a court application and the payment of full compensation to the leaseholder for the full value of the remaining 90 years. The incusing of the landlord’s redevelopment right does not cause any difficulties in mortgaging the flat.
Note: If a leaseholder is the first in their block of flats/building to extend their lease, there could of course be the situation where that particular leaseholder has a lease which is not identical to the others in the block and therefore no uniformity throughout that development.
Common examples of defects in the lease which have been remedied during the course of a statutory lease extension are as follows:-
- Service charge percentages – it is possible for certain service charge adjustments to be incorporated in the individual lease extension and this could for example include an error in the percentage stated in the existing lease. Note that the provisions of s57(2) of the Act and that if the lease extension cannot be agreed and references made to the First-Tier Tribunal they are only concerned with the terms of one lease (the individual lease extension being dealt with) and accordingly do not have the power to vary the terms of the other leases in the building during the context of the lease extension. This would be for example where the coverability of service charges throughout the building do not equate to 100%.
- Insurance – it is commonplace for a lease extension in a maisonette to include a provision whereby responsibility for insurance of the building is placed on the landlord as opposed to the leaseholder. There are many leases where the burden is upon the individual leaseholders to insure the building. This has many problems if for example one of the flats does not have adequate insurance in place so the current reinstatement value of the property is incorrect and in the event of destruction or damage, there is a shortfall that is the responsibility of the leaseholder.
It should be noted that many landlords will seek an opportunity such as a statutory lease extension to incorporate terms in a deed of surrender and re-grant of lease/deed of variation which are not permitted under the 1993 Act. Such modifications, exclusions or additions are however permitted in a voluntary lease extension and accordingly a tenant should always seek legal advice before agreeing a lease extension to make sure that their obligations under the extended lease are no more onerous as they were under the existing lease.
In conclusion, straightforward lease extensions can in fact become protracted if a landlord seeks to incorporate onerous terms not permitted under the 1993 Act. It is therefore imperative that a leaseholder seeks professional advice from a solicitor with the expertise to deal to make sure that their rights are protected at all times.
For further information on this and other leasehold services provided by Child & Child, please contact Katie on:
Tel: 020 7201 1865
e-mail: [email protected]