Lease Extensions – a brief overview
Lease Extensions can be arranged on a voluntary (informal) or statutory (formal basis). When the Lease Extension is arranged voluntarily, the terms of the extension and the premium are agreed between the freeholder and leaseholder, on occasion this will be the most suitable way to extend the lease.
Statutory lease extensions are those carried out under a lessees rights as provided by the 1993 Act.
The premium is calculated by a prescribed formula. The premium is derived by calculation the reversionary value of the property, the loss of ground rent, marriage value when applicable and compensation to the freeholder where applicable. However, tenants improvements are to be disregarded.
Whilst the formula is prescribed, it is common for leaseholder and freeholders to disagree on key inputs resulting in a vastly different premiums.
When a leaseholder serves a s.42 notice to extend their lease, they also become liable for the freeholder’s reasonable costs, usually those of the freeholder’s solicitor and surveyor. In addition the leaseholder will also have their own legal and valuation fees to consider.
It is common for surveyors of the freeholder and leaseholder to be instructed to negotiate the premium with a view to coming to an agreement on the amount payable to extend the lease, if the premium cannot be agreed an application can be made to the
The First-tier Tribunal
The First-tier Tribunal (formerly the LVT), has jurisdiction to determine matters that cannot be agreed between parties, including the premium and the reasonableness of the Freeholder’s costs.
The information provided is intended as a brief overview, Leasehold Reform is a complex area of law and valuation, it is always recommended to take specialist advice.
The Leasehold Advisory Service is a government supported information service with a wide range of useful information.