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Articles from the Silver Shemmings Ash Team on contractual matters, recent case law changes and items of interest in the construction and property world

Lease Extensions For Flats by Mohammed Kalam

March 12, 2019 | Silver Shemmings

What is it?
A tenant of a leasehold residential flat has a statutory right to a new lease under the Leasehold Reform Housing and Urban Development Act 1993 (LRHUDA 1993). This is commonly referred to as a ‘lease extension’. The term of the new lease will be for a term of 90 years plus the remainder of the term of the existing lease and the ground rent shall be reduced to a peppercorn (zero). A premium will be paid to the landlord as compensation for the loss of rent and for being kept out of the reversion for an additional 90 years. This premium is usually subject to a lot of negotiation.

Who is it for?
For the tenant to be eligible, the tenant must have been the owner of a long lease for at least two years before the claim for the lease extension is made. A long lease is usually one that had a term of more than 21 years when it was originally granted. A shared ownership lease will not qualify save for where the tenant’s share has been staircased up to 100%.

Valuation?
Schedule 13 of LRHUDA 1993 provides the method to establish the premium payable by a tenant for the lease extension. This is a complex procedure and should be carried out by a RICS valuer with the requisite expertise. It should be noted that if an unreasonably low figure is quoted on the Notice of Claim, the notice may be deemed invalid.

How Is It Exercised?
To begin the process of claiming a lease extension, the tenant must serve on the landlord a Notice of Claim. There is no prescribed form but Section 42 of LRHUDA 1993 sets out what the Notice of Claim must contain;

  • Full name of the tenant and address of the flat to which the claim relates to and particulars of the flat to identify the extent of the claim.
  • Particulars of the existing lease which should include the date it was granted, the term it was granted for and the commencement date of the term including the original parties to the lease.
  • The premium the tenant proposes to pay including other amounts payable to other intermediary landlords.
  • The term proposed for the new lease.
  • The name and address for the person acting for the Tenant. This must be an address in England & Wales where the landlord will serve the counter notice to.
  • The date by which the counter notice must be served by. This date must be at least two months after the Notice of Claim is served. Failure to give at least two months from the date of service of  the Notice of Claim will invalidate the claim!

To Whom?
The Notice of Claim must be served on the ‘Competent Landlord’ and any ‘Other Landlord’ pursuant to Section 40 of LRHUDA 1993. If the tenant’s immediate landlord is the freeholder then it is clear who the Competent Landlord is. However if the tenant’s immediate landlord is not the freeholder, it must be established whether the immediate landlord has a sufficient interest to grant the new extended lease. If the immediate landlord does not have a sufficient term in the head lease to grant a lease extension, the next landlord up the chain must be considered until the Competent Landlord is found.

Consequences Of Serving The Notice Of Claim
As soon as the Notice of Claim is served the tenant is usually liable to do the following;

  • Paying the landlord’s reasonable costs. These usually consist of professional costs such as solicitors and surveyors.
  • Deducing the tenant’s title to the flat.
  • Paying a deposit to the landlord. This is usually 10% of the proposed premium or £250, whichever is greater.
  • Allowing the landlord or their agents to inspect the flat for valuation purposes.

The Counter Notice
Pursuant to Section 45(1) LRHUDA 1993, the landlord must serve a Counter Notice by the date specified in the Notice of Claim. The Counter Notice must do one of the following;

  • Admit the claim. The form of Counter Notice must specifically state that the Landlord is admitting the tenant’s claim and which of the proposals for the new lease the Landlord agrees with and which proposals the Landlord does not agree with including making any counter proposals.
  • Not admit the claim. In this instance the Landlord must apply to the court for a declaration that the tenant did not have a right to a lease extension. This application must be made within two months of the date of the Counter Notice not admitting the claim is served.
  •  Landlord’s intention to redevelop. The Landlord can serve a Counter Notice in which the claim is either admitted or not admitted but also state that the Tenant should not be granted a lease extension as the Landlord intends to re-develop the Property. The Landlord should apply to the court for an order that the lease extension should not be granted on this basis.
    Failure by the Landlord to serve a Counter Notice by the time specified in the Notice of Claim will allow the Tenant to apply to the court for an order granting it the new lease on the terms that the tenant proposed in the Notice of Claim. The Tenant has a period of six months from the date the Counter Notice was supposed to be served to make an order to the court.

The New Lease
Once the form of lease and all the terms of acquisition have been agreed the parties can complete the lease.

Tribunal Application
If the terms of acquisition of the new lease cannot be agreed, either landlord or tenant can apply to the tribunal for determination. The application should be made not less than two months after the service of the counter notice and not more than six months after the service of the counter notice.

Costs
As mentioned above the Tenant will be liable for their own costs as well as the Landlord’s reasonable costs. If the Landlord and Tenant are unable to agree the level of costs an application can be made to the court for their determination.

Author Mohammed Kalam has been working as a fee-earning Paralegal for the last five years acting for housing associations, charities, developers and high net-worth individuals, one of his highlights has been acting for a housing association who instructed him to simultaneously extend 45 leases under the statutory route as tenant


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