Extending Residential Leases

The Leasehold Reform, Housing and Urban Development Act 1993

This is the piece of legislation which deals with lease extensions. Strictly speaking, there is no such thing in this instance as a lease extension, the act gives lessees (that is people that own leases) the right to surrender their existing lease and acquire a new lease on their property.

In basic terms, leaseholders qualify for the right to extend their lease if they have held the lease for at least the last two years and the lease when it was originally granted was for a length in excess of 21 years. As with all things legal there are exceptions and you need to take legal advice.

If the leaseholder qualifies for the right to extend the lease then by law the lease is extended for an additional 90 years on top of the lease length that exists at the time of the "extension", but with all other lease terms remaining the same.

Of course the freeholder is entitled to be compensated for "extending" the lease. The compensation is a calculation based on the capital value of the flat (houses are discussed later) with its current lease arrangement, the existing ground rent payable, the remaining period of time on the existing lease, and potentially the value of the property with the lease extension in place.

If the existing lease has more than 80 years to run then this compensation is likely to be relatively nominal, relative to the capital value of the flat. If the existing lease has less than 80 years to run then the freeholder is entitled to share in the marriage value. The marriage value is the difference between the existing value and the revised value when the lease extension has been put in place and is fixed at an equal share between freeholder and leaseholder, i.e. 50% to each party. All that needs to be done is for the parties to agree the amount of the marriage value and then a portion it accordingly. There is no marriage value payable if the lease has over 80 years left to run.

The rules are similar but slightly different if the property in question is a house rather than a flat. The "extension" to the lease is 50 years rather than 90 years and there is the potential to negotiate different terms for the new lease.

In all of the above cases, if an agreement cannot be reached between the parties as to the value attributable in the respective transaction then either party is at liberty to appeal to the Leasehold Valuation Tribunal, which is an independent legal body that can settle certain types of leasehold dispute without the need to go to court.

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by: Joseph Hurst

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