Extending a long residential lease of a flat under the LRHUDA 1993
Nicola Newton looks at how you can use statute to extend the contractual term of a lease of a flat.
There are essentially 2 distinct forms of legal ownership in property. A freehold interest, put simply, is where you own the building and the land it stands on in perpetuity. This is often the preferred option. On the other hand, a leasehold interest is where you have a lease granted by a landlord, often the freeholder, to use the property for a number of years. Leaseholders of residential property would usually have to pay rent and service/maintenance charges to the landlord who would in turn provide services such as insuring the building, maintenance of communal grounds and repair and maintenance of the structure of the building of which the property forms part. Leaseholds are commonly flats, although, less typically, leases of houses can be granted.
This article looks at how you can use statute, namely the Leasehold Reform, Housing and Urban Development Act 1993 (‘the 1993 Act’) to extend the contractual term of a lease of a flat. The 1993 Act gives a residential tenant a right to a new lease, replacing their existing lease, where certain qualifying criteria are met and lays down a procedure to do so.
The lease must be a long lease, i.e. granted for a term of at least 21 years, though certain other leases also qualify, and the tenant must have been the registered proprietor of the leasehold title for at least 2 years. If the statutory procedure is successfully followed the new lease granted will be for a term of 90 years plus the remainder of the term left to run of the existing lease and the rent will be reduced to a peppercorn rent. Effectively, there will be no rent payable. To compensate the landlord’s loss of no longer paying ground rent, a premium is paid for the lease extension. A number of elements make up the premium and a specialist valuer is recommended to be instructed to assist to determine the premium.
The start of the procedure is to serve an initial notice, however, before then the following things should be considered:
- You will need to identify the ‘competent landlord’ who is able to grant you the new lease. Your immediate landlord may be the freeholder or a party to a headlease that is sufficiently long. If you do not have information to verify the competent landlord or even if the landlord is missing then certain procedures are in place to deal with this.
- Ensuring you have the finance in place to extend the lease – this would include paying the premium and paying professional costs of your solicitor and the valuer. If you serve the initial notice to trigger the statutory procedure, you also become liable for the landlord’s reasonable costs, although only certain categories of costs are recoverable.
Once your notice has been prepared and contains all the required information it must be served on all landlords and third parties to your lease. It is also prudent to protect your notice by registering it at the Land Registry (if your landlord’s interest is registered) or as a land charge (if unregistered).
Following service the tenant becomes liable to pay the landlord’s costs, to pay a deposit to the landlord (either £250 or 10% of the total amount payable under your initial notice, whichever is higher) and also allow the landlord to inspect the flat at a reasonable time subject to giving 3 days’ notice.
The landlord must then serve a counter notice by the date specified in your initial notice in which he either admits your claim or rejects your claim or refuses to grant the new lease on grounds of redevelopment.
If the landlord admits the claim – the counter notice must specifically state he admits the claim and also which of the proposals for the new lease the landlord agrees or disagrees with.
If the landlord rejects the claim – the counter notice must specifically not admit the claim and the landlord must apply to the court within 2 months for a declaration that the tenant did not have a right to a lease extension.
If no counter notice is served, is served late or is invalid – the tenant may apply to the court for an order granting them the new lease on the terms proposed in the initial notice.
The new lease will be granted on certain terms including a peppercorn rent, a term of 90 years plus the remainder term of the existing lease, on the same terms as the existing lease and also including a clause giving the landlord the right to possession for redevelopment purposes. The landlord and tenant are free to agree other terms of the lease particularly if the existing lease is old and a modern form of lease would be beneficial. Certain procedures and tight deadlines are involved in agreeing the form of a new lease so the landlord and tenant and their respective solicitors must act efficiently. Once the new lease has been agreed either the landlord or the tenant may serve a notice on the other party to complete the lease within 21 days of the notice.
The landlord and tenant are able to contractually agree to extend the lease without following the procedure under the 1993 Act, however, particular pitfalls may arise and the agreement will be a matter of negotiation. Where an extension is agreed by consent and the leasehold interest is mortgaged then it is necessary to also complete a deed of substituted security. No such deed is required where the lease is extended under the 1993 Act.
This has just been a brief summary of the procedure under the 1993 Act. It is clear that extending a lease can be a complicated matter. You are, therefore, advised to use reliable and efficient professionals to guide you through the process, whichever procedure you end up using.