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Lease Extension: “I have been offered a new lease, should I accept it?”

Posted on October 11th 2017

“More and more frequently I am being asked the same question; ‘I have been offered a new lease by my landlord, should I accept it?’”

Have you been offered a new lease by your landlord? Should you accept this offer or request a statutory lease extension? Our leasehold expert, Wesley Heath, discusses what you should do:

Remember – your flat lease is a diminishing asset:

As a leaseholder, you own your property for a fixed number of years, as set out in your lease agreement with the freeholder. The number of years is different for different properties. For example, some properties may have a lease that only lasts 99 years, whereas others may last for 999. As the amount of years left on your lease falls, so can the value of the property.

In most cases, if your property has less than 70 years left on its lease, you may struggle to sell it. Increasingly, lenders are refusing to give potential buyers a mortgage on leasehold properties with less than 70 years on the lease.

More people are becoming aware of this fact, and realise that their flat lease is a diminishing or wasting asset. As a result, they are approaching their landlords to ask for a new lease.

More often than not, the landlord responds and makes them an offer. They then approach me and ask me to give them a simple yes or no answer – should they accept it?

Unfortunately, in 90% of cases the answer is a lot more complicated than a simple yes or no. Below are some factors that must be considered:

Statutory lease extension – do you know your rights?

If you have owned your flat for two years or more, and your lease meets the legal criteria, you have certain rights. You are able to legally request a lease extension from your Landlord. The statutory lease extension is a new lease based on the terms of your existing lease but the length is extended by an additional 90 years. You also will not have to pay rent or ground rent anymore.

How to make a legal request:

To do this you should use a Solicitor, such as myself. Your solicitor may have to investigate who owns specific areas of the building or the estate. Following this investigation, they can find out who to make the legal request to, and draft the document.

What is a legal request?

The legal request is a notice, commonly called a Section 42 Notice. The notice must contain certain details such as your name, flat details etc.

Most importantly, it must contain what you propose to pay for the statutory lease extension. This payment is called a ‘premium’ and is calculated based on a valuation of the flat and the lease. A specialist valuer carries out this valuation.

Importantly, the figure has to be a genuine estimate of what you would expect to pay for the new lease or your notice might not be valid.

If your notice is not valid you will have to start the process all over again. In this instance you may lose valuable time on your lease, and pay a larger cost for the extension.

Beware the smiling assassin – what to do if your landlord offers you a new lease:

Instead of you sending a notice to your landlord, you may find that an offer for a new lease comes from them. This may simply land in your post box or come in response to an enquiry you have made about a lease extension.

Your landlord may offer you a new lease in exchange for the payment of a fixed premium. Do not fall into the trap of immediately accepting this offer. The devil is in the details, and this offer is just an offer – you do not have to accept it. On closer inspection, the offer may be a very bad deal.

Why could it be a bad deal? Well, your landlord does not have to base the ‘fixed premium’ payment on any type of valuation (unlike the statutory lease extension). Furthermore, the payment does not have to be a reasonable offer and the new lease does not have to be drawn up in any specific way.

Without a valuation, there is no way for you to know if the offer made by your landlord is reasonable.

How do I know if the terms of the new lease on offer are acceptable?

Before you accept the offer, you should always speak to a lawyer or a specialist valuer. If you accept this offer without consulting either party then you may end up with a bad deal. In the worst case, you could end up with a lease that:

  • Costs you considerably more in the end.
  • Potentially puts you in breach of your mortgage.
  • Is now impossible to sell.
What else could go wrong if I do not get legal advice?

Without legal advice you could end up:

  • Paying a ground rent that doubles every ten years for the next 250 years.
  • Accidentally amending your contribution to shared expenses – meaning that you now pay more.
  • Mistakenly allowing your landlord to charge you increased administration fees.
  • Inadvertently splitting your lease so that you extend part of it but not others

The list goes on, and is definitely not limited to just these examples.

Landlord offer vs Statutory lease extension – which should I choose?

In the tables below we show some of the pros and cons of both options:

Landlord Offer (Informal Route)
Tenant Notice (Statutory Route)
Pros
  • This process can be more simple.
  • You could get a cheaper premium than you can get via the statutory route.
  • This process can be quicker.
  • You could potentially get any new term.
Pros
  • Fixed term extension (90 years plus the remaining term)
  • No more ground rent
  • Payment of the premium is established with reference to the law and there is a legal process to adjudicate this premium & costs
  • Landlord has to co-operate with the process in a fixed time
  • Your mortgage company does not have to give you permission.
Cons
  • This can be much more complex.
  • You may end up paying more than you would pay via the statutory route
  • Ground rent increases could potentially be harmful.
  • This process can be much slower.
  • You could get a smaller term than you can get via the statutory lease extension.
  • Your mortgage company must give you permission, which could increase the cost.
Cons
  • This process can take months, which could be bad if you are selling the property.
  • You have the risk of going to an adjudication -that may incur much higher legal/professional fees
  • There are upfront costs – you are required to pay a 10% deposit and landlord’s legal and surveyor’s fees
  • You must also instruct your own surveyor

 

How can we help?

We give the best legal advice to clients regarding their leasehold properties every year. Please contact us today on: 01244 312306 or fill in our contact form. You can also find out more about our leasehold services here.

Call and speak to a lawyer on 01244 312306