At some point a long lease will need to be extended (unless it has a term of 999 years) because as its term reduces it becomes more difficult to sell a property and a loss of capital value occurs in parallel.
Leaseholders became legally entitled to a statutory lease extension of 90 years added on the unexpired term (after owning the property after two years or more) through s42 of the Leasehold Reform, Housing and Urban Development Act 1993 (notice by a qualifying tenant of claim to exercise right). It was finally granted because leaseholders had been getting increasingly angry for decades that not only had they paid a large amount of money up front, but they had continued to pay for repairs, maintenance and buildings insurance and freeholders were making yet more money by charging what they liked for extending the lease.
If the lease has over 80 years remaining then taking action before it drops to 80 years remaining will avoid the payment of what is known as marriage value which is where the freeholder is compensated for the loss of ground rent.
It must however be remembered that the freeholder is only ever obliged to grant the 90 years where a formal Notice is served and that a lease extension cannot be granted where:
- The majority of the leaseholders have applied to get the freehold under collective enfranchisement;
- The lease term has already ended;
- The property has been sublet on a lease at least 21 years;
- The lease was originally granted for less than 21 years;
- The freeholder is a charitable housing trust and the flat is provided as part of the charity’s functions:
- The building in which the flat is located is within a cathedral precinct or it is owned by the National Trust;
- The property is part of the Crown (although they may agree to extend),
- The freeholder wants to demolish or redevelop the property (in which case compensation would need to be paid).
Notice of Claim
Whilst it is not a legal requirement to hire a solicitor to serve the required notice on the landlord, it is advisable to do so. The Notice will be served on the must on the immediate landlord (i.e. the freeholder who will have the sufficient superior interest in the property to be able to grant it) and the leaseholder will have already obtained their valuation for inclusion in the notice and which they pay for. Ideally they will use the services of a specialist in enfranchising such as the Association of Leasehold Enfranchisement Specialists (ALEP). The notice mus contain the following:
- The full name of the leaseholder and the address of the flat;
- Sufficient information about the flat to identify the property and the leaseholder to which the application relates;
- Details of the lease including its date of commencement and its terms;
- The premium proposed (offer price) for the new lease and or other amounts payable where there are intermediate leases;
- The terms that the leaseholder proposes for the new lease if different from the present lease;
- The name and address of the leaseholders’ representative if one has been appointed;
- Ground rent payable;
The deadline by which the landlord must reply which, by law, is within 2 months of the date of the notice.
The freeholder valuation is payable by the leaseholder under s60 of the 1993 Act (cost incurred in connection of new lease to be paid by tenant) which states that where such a notice is served, the leaseholder is liable for the reasonable costs (of) and incidental (to):
- Any investigation reasonably undertaken of the tenant’s right to a new lease;
- Any valuation of the tenant’s flat obtained for the purpose of fixing the premium or any other amount payable by virtue of Schedule 13 in connection with the grant of a new lease under s56 and;
- The grant of a new lease under that section.
The information comes in two parts: the report and a valuation breakdown which can be read here.