Why does a lease extension require a new lease?
As a flat-owner you may know that you may be entitled to a 90-year lease extension. Perhaps you have already served a S42 Notice and terms have been agreed. But many owners do not realise that once this stage has been reached, it is necessary for the landlord to grant you a new lease of your flat.
You might be think that as you already have a lease, this is quite unnecessary. Surely a short document saying that the term granted by the existing lease is extended by 90 years would be sufficient? In fact in the past such variations to the terms of leases often were recorded by a short form of wording written on the back of the original lease documents.
Implied surrender of existing lease
But the land registry now takes the strict view that a new lease for an extended term operates as if the original lease had been handed back (or ‘surrendered’) to the freeholder. This applies whether the new lease is granted following service of a S42 notice or where terms have been agreed on a voluntary basis.
The new lease will be for a term expiring 90 years after the end of the present lease, at a peppercorn rent. [A peppercorn rent is an obsolete legal fiction – leases originally had to reserve a rent to be valid. So when no ground rent is payable, something of no monetary value, such as a peppercorn, is inserted instead. ]
When the extension lease has been completed, your Conveyancing Solicitors must apply for registration of the new lease in place of the original lease.
Although this procedure may seem somewhat unnecessary, it does benefit flat-owners as the new lease will also be registered against the landlord’s title. This means that if the landlord subsequently sells his property, any buyer will have notice of the existence of the new lease.
Arrangements for existing mortgages
One of the consequences of this is that if you have a mortgage on your flat, you will have to ask your lender to confirm their agreement to the extension. It will be very unlikely for them not to agree, since an extended lease should give them better security. However to comply with the land registry’s requirements you will have to sign either
- a deed of substituted security – this substitutes the new lease as security for the mortgage, in place of the original lease
- a new mortgage deed – in this case the lender will have to notify the registry on completion that the original mortgage is discharged.
The second method is more complicated, but is preferred by the registry. However most lenders use deeds of substituted security, and use a simple form which is supplied to the leaseholder’s Conveyancing Solicitor.
With Fridaysmove you can be sure of having the services of a Conveyancing Solicitor who is skilled in lease extension work and will handle the completion and registration of your new lease in the least possible time. Call us on 0800 038 6446 now for more details.