Applying for a Lease Extension in London

It is not uncommon to find leasehold properties in London which have a short number of years left to run on the lease (often referred to as the ‘unexpired term’). If this is the case, consideration needs to be given to applying to extend a lease.

Why extend the lease?

Once the unexpired term gets to 80 years or less it becomes much more expensive to get a lease extension. You should therefore apply to extend the lease at least a year or two before it reaches an unexpired term of 80 years to avoid paying a higher sum to extend it.   If you intend to sell such a property, either immediately or in the future, the seller will almost certainly raise the issue of a lease extension. Some buyers may even be a little put off going for a property with a short unexpired term since they do not wish to go through the whole lease extension process which will increase their costs.

A property is therefore more marketable if the unexpired term on the lease is high and estate agents will market the property in this way.

From a lender’s point of view, many lenders will not lend on properties which have a short unexpired term.   Click here to view the Council of Mortgage Lender’s handbook which provides details of all lenders in the UK and their particular requirements. Some lenders will lend on properties that have 55 years left to run and others will specify that they require at least 25 years left on the lease after the mortgage term has expired. Lending criteria differs lender to lender.

 

When do I need to apply to extend my lease?

You should start to think about applying to extend the lease on your property when the unexpired term approaches the 80 year mark. This is because it is generally more expensive to extend the lease after this point because any valuation of the lease extension must factor in something called the 'marriage value'.

This is calculated by deducting the value of the property before it is extended from its value after it has been extended, and then adding the landlord's interest – the loss of income from ground rent for the remainder of the original term as the whole of the new lease will be at a ‘peppercorn’ rent.

 

What should I do if I want to buy a property with a short unexpired term?

You should firstly check the lease to see how many years are left to run on the lease. If you are buying with the assistance of a mortgage, check the lender’s requirements as regards how many years they expect to see (unexpired) on a lease before they will lend.

If the number of years is nearing 80, you should ask the seller to apply to extend the lease. If they agree to do so, they will start the process by serving the initial Notice to extend the lease on the landlord with a copy being properly sent to any intermediary landlords.

Your conveyancing Solicitor should also check the lease carefully and should ensure that the seller has served the Notice in the correct format and on all the relevant parties.

On completion of the sale to you, the seller will then assign the benefit of the Notice to extend the lease, to you, and you will effectively take over the lease extension process. The assignment must be undertaken correctly, either by way of a Deed of Assignment or with a strictly worded provision included in the Transfer to you.

 

What is the procedure for applying for a Lease Extension in London?

Read more about how to extend your lease in detail here but in brief, the steps are as follows:

 

Eligibility

You will need to have lived at the property for a minimum of 2 years in order to be eligible to apply for a lease extension (new lease). However, if you are buying a property and you wish to extend the lease then you should ensure the seller serves the initial Notice on the Landlord to commence the process before you exchange contracts. The benefit of the Notice can then be assigned to you on completion. The two years residence rule will therefore not apply in this case.


The Premium

A premium is payable to the landlord for the lease extension. A valuer can be instructed to value the property or the parties can agree the premium amongst themselves.

 

Who is the Competent Landlord

The Competent Landlord is the landlord who has a sufficiently superior interest in the property and is therefore able to grant a new lease of 90 years. In most cases it will be your immediate landlord. However, if your immediate landlord only has an unexpired term of, several years, for example, then you will need to serve the Notice on the intermediate landlord.

 

The Notice
The Notice that commences the lease extension process needs to be properly drafted and served on the Landlord. It is referred to as a Section 42 Notice (Leasehold

 

Deposit
The Landlord will, generally, request a deposit to be paid once the initial Notice is received and this is usually 10% of the actual premium.

 

Counter Notice

The Landlord will serve a Counter Notice stating whether or not they accept the Notice to extend the lease and this must be served by the date specified in the initial Notice (usually at least 2 months). If the Landlord fails to serve a counter notice then a Vesting Order can be applied for from the County Court which means that the court will step in as the landlord and deal with the granting of the lease.

 

Land Registry to be informed
Once the Notice has been served an application for a Unilateral Notice must be made to Land Registry to register the Notice against the property so anyone inspecting the title to the property will be put on notice of the lease extension application.


What if the Landlord cannot be located?
If the landlord cannot be found a Notice cannot be served. A Vesting Order must be applied for at the County Court which your conveyancer will explain to you.


Who can help me extend my lease in London?

 

You can instruct a solicitor or a conveyancer to assist you with your lease extension. Fridaysmove have extensive experience in dealing with lease extensions.  

Whoever you instruct, you must make sure your solicitor or conveyancer has sufficient knowledge in the field of lease extensions since the process is very rigid and time limits and the format of Notices, etc. , must be strictly adhered to.