Lease Extension Services
Extending your lease can sometimes be a daunting prospect for many leaseholders. The most asked questions are :- Where do I start? Who do I contact? and How much will it Cost?
Well don’t worry, you’re in safe hands with MAP Surveyors as we can guide you through the process and answer these questions and many more.
To start with, it’s key that you understand whether you fall into one of these two qualifying criteria’s. Once this has been established you can begin the process by engaging a lease specialist solicitor and a RICS surveyor who specializes in lease extensions.
The Leasehold Reform, Housing and Urban Development Act 1993
The Leasehold Reform, Housing and Urban Development Act 1993 (as amended by subsequent Acts) allows leaseholders to exercise their right in order to obtain a 90 year extension to the current unexpired term with a peppercorn ground rent. Certain legal criteria must be adhered to for a leaseholder to qualify. The act allows a leaseholder to add 90 years to what is left on the existing lease at a peppercorn rent. This means no ground rent is payable on completion of the lease extension. The ground rent that may have been stated within the original lease would be extinguished. For example, if a lease had 60 years remaining the new, extended lease would be for 150 years.
What is meant by a Formal Claim
If a leaseholder has been the registered owner, personally or through a company for 2 or more years and the original lease was granted for more than 21 years, they have the right to extend the lease for an additional 90 years to their current unexpired term. This is known in the industry as the formal route and it involves the service of a Section 42 Notice under the Leasehold Reform, Housing and Urban Development Act 1993 after first obtaining a valuation of the proposed lease extension cost. The Landlord is entitled to a premium (the price) for the lease extension based upon a formula set out in the Leasehold Reform, Housing and Urban Development Act 1993. There is a substantial amount of work to be completed before the leaseholder can start the process. Eligibility will need to be checked against the qualifying legal criteria in order to exercise such right under the Act. The competent landlord must also be identified and confirmed so that the notice is served upon the correct party. The leaseholder will need to instruct professional advisers, namely surveyor and solicitor.
What is meant by an Informal Claim
If you wish to extend your lease it may be possible to negotiate a lease extension with your Landlord, this is known as an informal agreement. There are no set rules with an ‘outside of the Act’ agreement and the landlord could refuse to extend your lease as they have no obligation to do so. If the landlord is willing to propose informal terms, they may offer a shorter lease length than what the leaseholder is entitled to under the Act and they may retain/increase the ground rent as an associated term.
How is the premium calculated?
A. Capitalisation of the Ground Rent.
The remaining ground rent will be capitalised for the remainder of the term and the yield adopted will depend on the amount of ground rent payable and the review pattern if any.
In theory the freeholder has the right to have the leasehold unit revert back at the end of the lease which consequentially will be delayed by an extra 90 years when extending under the Act. Therefore the freeholder will need to be compensated for deferring the unit by the additional 90 years.
C. Marriage Value
This only applies where the lease length falls below 80 years. Above 80 years no marriage value is applicable hence the lease extension is so much cheaper.
Marriage value is the additional value which is realised by merging the existing interests (short lease and freeholder) compared to the new long leasehold value.
The total of all three of these calculation components will be the premium payable which means the amount the freeholder is entitled to receive.