There are two main ‘routes’ to extending a lease – the informal route and the formal route. The formal route is the statutory lease extension process, which is set out in the current leasehold legislation and is open to people who have owned their property for at least two years. According to this process, eligible leaseholders can extend their lease by 90 years at zero ground rent.
How does it work?
Step 1: Instruct a solicitor
To ensure your lease extension goes smoothly, it is vital to have a specialist solicitor on hand who knows the statutory process inside out. They can help you to serve and respond to all the relevant notices, negotiate with your freeholder on your behalf and keep things moving to resolve the process as swiftly as possible.
Step 2: Get a professional valuation
Current leasehold legislation contains a formula that can be used to calculate the value of your lease according to a wide range of factors. The formula is complicated, and based both on known facts and educated assumptions about the local market, so it is best that a professional surveyor experienced in calculating lease premiums does this for you.
A professional valuer will be able to give you the best indication of a fair premium to pay, and provide you with evidence that you can present to your freeholder.
Step 3: Serve a Section 42 notice
A Section 42 notice is the formal way to let your freeholder know that you would like to extend your lease. It is vital to get your solicitor involved in drafting this notice, as it must be laid out in a certain way and contain specific information to prevent costly delays and errors down the line. If a Section 42 notice has to be withdrawn, you have to wait for a full 12 months following the date of the initial notice before you can issue another.
Among the information required in the notice will be your opening offer for the premium, the number of years you want to extend the lease by (i.e., 90), details of the current lease and any proposed changes to the ground rent.
Step 4: Wait for the counter notice
Your freeholder has two months from the date they receive the notice to respond with a counter notice (otherwise known as a Section 45 notice). They may accept the terms (or reject them) in their entirety, or suggest proposed changes to your terms – for example, by revising the premium they are willing to accept. Your landlord can also request a deposit of 10% of the suggested premium or £250 (whichever is the highest).
Step 5: Negotiate terms
Your solicitor will help you enter into negotiations with your freeholder with the aim of reaching mutually acceptable terms. If an agreement can’t be reached, however, your case will have to go before the Residential Property Chamber of the First-Tier Tribunal. As this can be very costly and time-consuming, you should only consider taking this route if your freeholder is proposing a premium that is significantly higher (i.e. to the tune of £10,000 or more) than what you have offered.
Step 6: Finalise arrangements and register the new lease at the Land Registry
Once negotiations are completed, your solicitor will undertake all the necessary administrative work required to register your new lease with the Land Registry.
Whether or not you take the formal route to lease extension depends entirely on your individual circumstances, but there are certainly some advantages to doing so:
- You have the protection of statutory entitlements – if you take the formal route to lease extension, you are guaranteed the right to a 90-year extension at zero ground rent. If you try to negotiate informally with your freeholder, you may be able to extend your lease for longer than 90 years – but equally your landlord may only be willing to accept a shorter term. They can also retain your ground rent under the informal process.
- You have recourse if your freeholder is unwilling to engage – under the current legislative process, your freeholder must respond to a Section 42 notice within two months, with another six months after that to negotiate terms if necessary. If your landlord does not respond within this timeframe, they lose their right to dispute the terms of your lease extension and you can apply to the County Court instead. If you take the informal route, however, you have little recourse if your freeholder is unresponsive or missing.
- You can exclude unreasonable terms – the current legislation provides specific examples of when and why the terms of a lease can be changed. If you follow the formal route, your landlord will need to prove that any changes to the lease terms reflect the situations laid out in the legislation and you can move to exclude unreasonable terms.
With the guidance of your solicitor, you may prefer to try to negotiate informally with your freeholder before going down the statutory route, which has its disadvantages as well as its benefits:
- It can be a lengthy process – due to the statutory notice periods set out in the legislation, the formal route to lease extension can be a lengthy affair. Depending on your relationship with your freeholder and how negotiations proceed, the informal process can be comparatively speedier as there are no such timeframes to uphold.
- It can cost more – again, this is all dependent on your personal circumstances. But statutory lease extension can be a little more expensive because you have to pay to serve the required statutory notices on the other party.
- You can’t extend for more than 90 years – although legislation has been proposed to change this, the statutory process will only let you extend your lease by 90 years at present. Theoretically, you could extend your lease by 999 years when taking the informal route – but your freeholder has to agree, of course!
Don’t go it alone
The steps in the statutory lease extension process are complex and must be followed very precisely to avoid costly mistakes and lengthy delays. That is why it is so vital to instruct a solicitor with experience in leasehold enfranchisement to guide you.
Our lease extension solicitors have decades of experience in this niche and complicated field of law, so please do get in touch for more information about extending your lease via the formal route. Call the team on 0203 871 0039 or email email@example.com.