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What happens when a buyer wants the seller to extend a lease before completion?

If often happens that when a leasehold flat is being sold, the buyer wants to get the lease extended. In that case they will want the seller to take appropriate action, as the buyer will not entitled to a lease extension until he or she has owned the property for at least two years.

If the buyer insists upon arrangements being made for a lease extension, there are two choices open to the seller and buyer:

  1. The buyer will insist upon the seller making all the arrangements to get the lease extended before completing the purchase.  
  2. The seller can agree as a condition of the sale contract that he will serve the statutory notice requesting a lease extension, and then assign the benefit of this notice to the buyer on completion of the sale.  

In the first case, the buyer will have to wait while the seller goes through the necessary steps to obtain a lease extension from the freeholder. As this can take several months, it is often not acceptable to one or both parties. However from the buyer’s point of view he will have the certainty of the new lease and will not have the bother of dealing with the landlord and his Solicitor and surveyor.

It is more usual to adopt the second course of action, but this is not without risk to the buyer. The seller will not want to serve the S42 Notice requesting a new lease until the exchange of contracts for the sale. If the buyer pulled out before exchange the seller might have to complete the lease extension himself – and pay all the costs.

The sale contract will therefore contain provisions agreed between the parties’ Conveyancing Solicitors for the service of the notice form immediately upon exchange. On completion the seller will assign the benefit of the notice to the buyer, leaving the buyer to deal with the extension afterwards.

The buyer will first have to decide on the premium he is prepared to pay to the landlord for the extension, as this figure has to be inserted in the form before it is served. It is advisable for this figure to be determined by a qualified surveyor, so the buyer must be prepared to pay for this.

The buyer will also have to trust that the notice is correctly prepared and served. While his own Solicitor should agree the form with the seller’s Solicitor, the rules for completion and service of these notices are very strict. Any failure in complying with the rules can result in the notice being declared invalid – this can involve the buyer in litigation about the validity of the claim.  

If the claim is defeated, the buyer will have to wait until he is entitled to serve notice himself. He may a claim against the seller or his Solicitor, but this will not help getting a lease extension.

Even when there is no problem with the notice, the buyer will still not know exactly how much he will have to pay for an extension until a figure has been agreed with the landlord. While most are reasonable, some can take a long time to negotiate the premium. A few cases where terms cannot be agreed have to be referred to a Leasehold Valuation Tribunal for a decision.

The buyer will also have to pay his own surveyor and Solicitor for their work in connection with the lease extension over and above the costs involved in buying the flat.

Although the procedures outlined above do enable a buyer to get the benefit of a lease extension, it is always preferable for the seller to have got the extension before selling the property, especially in the present state of the property market. It will not only be easier to sell a flat when the lease has already been extended, but it should command a better price.

So flat-owners are advised to check with their Conveyancing Solicitor to see if it is worth getting a lease extension. Give Fridaysmove a ring now on 0800 038 6446 and we can help you.

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