DO YOU OWN A FLAT IN A BUILDING WITH BUILDING SAFETY PROBLEMS?
DO YOU BENEFIT FROM THE LEASEHOLDER PROTECTIONS?
(1) ARE YOU THINKING OF EXTENDING YOUR LEASE?
- BEWARE!!
YOU COULD LOSE THE BENEFIT OF THOSE LEASEHOLDER PROTECTIONS!!
PLEASE SEE MY NOTE ON THIS ON MY APRIL 2023 LATEST NEWS PAGE VIA THE BELOW LINK:-
HOW DO I DO IT?
EXTENDING A LEASE ON A VOLUNTARY BASIS
It is open to a residential Leaseholder of a Flat to approach their Landlord at any time to see if they are prepared to agree to an Extension Lease and, if so, upon what terms
The Landlord is under no obligation whatsoever to do so and, if it chooses to, can dictate the terms upon which such Extension Lease will be granted such as:-
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how long will the Term of the Extended Lease be? - Whilst the Leaseholder will obtain a 90 year extension under the statutory procedure, that does not apply here and the Landlord can decide the length of any extended Term (the longer the extended Term the higher the premium (i.e. purchase price) will be)
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what will be the Ground Rent payable under the Extended Lease? – under the statutory procedure the Ground Rent is reduced to a peppercorn rent (i.e. in effect, no ground rent is payable), but that does not apply here and the Landlord can choose what Ground Rent will apply and any review provisions which will apply to such Ground Rent – a note of caution here – the Leaseholder should consider carefully any proposed new Ground Rent and review provisions to ensure that they do not fall into the current Ground Rent trap (making it difficult to sell the Flat or obtain mortgage funding upon it)
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will there be any changes to the terms and conditions of the existing Lease – if so, to what extent? – it would also be open to the Leaseholder to propose to make suitable changes to the existing Lease terms (such as to overcome any current issues affecting Leasehold Flats)
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what will be the premium (i.e. a purchase price) payable to the Landlord? Unlike a statutory Lease Extension, this will not be based upon a statutory valuation formula) and the Landlord can seek whatever price it requires – the less years remaining of the original Lease Term, the more expensive the Lease Extension will be and, in particular, it would probably be unlikely that a Landlord would agree to a voluntary Lease extension if there are still over 80 years remaining of the original Lease Term (as the Landlord would be better to wait until less than 80 years remain when it will command a better purchase price)
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it would be a requirement that the Leaseholder has to pay the Landlord’s legal and surveyor’s costs in relation to a valuation to assess the purchase price and the legal work involved in the completion of such Lease Extension
There can be quite a discrepancy in the premium (i.e. the price to be paid) payable to a Landlord for a Lease Extension (even for properties in the same block) and the amount payable will ultimately come down to the Leaseholder appointing a solicitor/surveyor to act on their behalf who knowns their stuff and is a good negotiator.
A simple check can be made as to whether the Landlord has already granted Lease Extensions for properties in your Block and what price was paid, by obtaining a copy of the up to date Freehold Title Entries to your Block from the Land Registry – these will show if there have been any such Lease Extensions granted and in relation to which Flats (and whether they were voluntary Lease Extensions or as a result of the statutory procedure being used) – you can then go on to obtain a copy of the relevant Extension Lease or Deed of Variation from the Land Registry, which will show the price paid
It may well be that a collective approach by a number of Leaseholders for a Lease Extension would be beneficial and enable savings to be made on solicitor’s/surveyor’s fees incurred by them
There is no real procedure which needs to be undertaken to extend your Lease voluntarily, but it will go along the following lines:-
1. the Leaseholder makes contact with the Landlord or its managing agent (whose contact details will be shown on the latest Ground Rent demand) to ask if they are willing to enter into a Lease Extension and, if so, upon what terms
2. the Landlord or their managing agents will respond saying either:-
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the Landlord is prepared to enter into such a Lease Extension and will outline their proposed terms or
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the Landlord is not prepared to enter into such a Lease Extension (in which case if the Leaseholder still wished to pursue a Lease Extension then they would need to use the statutory route)
3. assuming that the Landlord sets out its proposed terms, the Leaseholder will need to seek the advice of a suitable qualified surveyor and also solicitors upon such terms, with a view to entering into negotiations with the Landlord
4. the Leaseholder will also, if necessary, need to seek suitable funding for the proposed Lease extension and associated costs
5. once terms have been agreed with the Landlord then the Landlord’s solicitors will prepare the draft Extension Lease, based upon those agreed terms, and submit the same to the Leaseholder’s solicitors for approval
6. Once the form of the Extension Lease has been approved, then it will proceed to completion at which point the Leaseholder will be required to pay the purchase price, the Landlord’s solicitors and surveyors fees and also their own associated costs and fees
PLEASE NOTE: The above assumes that the Landlord is independent of the Leaseholders. However, there are a number of Buildings where the Freehold in the Building is either owned by a company specifically set up by the Leaseholders to purchase the Freehold or it was transferred to a Management Company of which the Leaseholders are either shareholders in such Company or are members of such Company (i.e. in both cases the Leaseholders control the Company)
In these circumstances, the Company which holds the Freehold in the Building may be quite happy to grant Extension Leases to the Leaseholders, very often without any premium (i.e. purchase price) being payable and reducing the Ground Rent to a peppercorn, as long as the legal costs incurred by such Company are met by the Leaseholder
If you are fortunate to be one such member or shareholder, then it is open to you (and the other members) to approach the Directors of such Company to seek a Lease Extension – if a number of Extension Leases are being granted at the same time this could reduce the overall amount of legal fees that would be incurred
Referring back to the note of caution I raised above, if the Company does grant an Extension Lease at a peppercorn Ground Rent then that will also have the effect of overcoming the current Ground Rent trap (making it much easier to sell the Flat and obtain mortgage funding upon it) – if the Directors still require a Ground Rent to be payable then suitable provisions can be incorporated to overcome such trap
BEWARE! the proposed new Leasehold Reform (Ground Rent) Bill, when it comes into force, will not benefit you on a voluntary Lease extension as the Ground Rent payable under your Existing Lease will still be payable for the remainder of the unexpired term of such Lease (which could still be many years away) and the Ground rent will only reduce to a peppercorn rent at the end of that period
Finally, a word of caution - whilst not seeking to tar them all with the same brush, not every Freeholder/Landlord will act in an honourable way when it comes to voluntary Lease extensions
The Leasehold Knowledge web site has a useful article on some of the major pitfalls for the unwary - here is a link to the article: Informal lease extensions are pure poison