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Protecting your assets: extending your lease

Many people who own a leasehold property will – at some point – face having to make a difficult decision about whether or not they should extend their lease. With an aging and growing population and with the continuing trend of developers building blocks of flats, this question can only become more prevalent.

The first question that will, naturally, spring to cross one’s mind is: how? Followed closely perhaps by: it is worth the time and expense? In an era where most people look for ways to create wealth, extending your lease may go someway to achieving that goal.

In fact, the procedure is relatively straightforward. That said, as with all property transactions, any tenant who wishes to set in motion the lease extension process, should ensure that they are in fact able to complete the acquisition.

Why should anyone want to extend their lease?

In short, when it comes to selling a leasehold property, one with a shorter lease is less valuable than one with a longer lease. Furthermore, mortgage companies are often reluctant to lend against leasehold properties that have shorter leases as they consider that these leaseholds are not good security. Thus, in order to preserve the leasehold property as a good investment, it can make sense to seek to extend a lease. The shorter the term on the lease, however, the more expensive it will be to extend.

There is nothing to stop the landlord and the tenant agreeing between themselves to extend the lease, but if they cannot agree, then generally speaking as long as the tenant has held the leasehold for a minimum of 2 years, they have the statutory right to extend the lease. Often, in fact, a purchasing tenant will find that the vendor has commenced the lease extension process and, if the benefit of the vendor’s application was assigned with the lease, the tenant can proceed with the lease extension process without having to wait to meet the two year qualification period.

The procedure

The first thing that the tenant will need to do is find a copy of their lease. A copy should be available at HM Land Registry if the tenant is unable to locate one.

The next step will be to identify the “competent landlord”: viz. a landlord who has an interest in the property that is 90 years more than your interest. This is because only such a landlord may grant the lease extension. The immediate landlord may not necessarily be the “competent landlord”. If in doubt, a tenant may be able to find out by serving their immediate landlord with a notice requiring them to disclose information concerning the leasehold building, their interests and any third party interests. A search against the title should identify who ultimately owns the building, who will generally be the “competent landlord”.

There are strict deadlines that must be adhered to by both parties during the lease extension process. Missing those deadlines can have serious repercussions for the party at fault.

Once the tenant has served their request for a lease extension, which is done by serving a notice under section 42 of the Leasehold Reform, Housing and Urban Development Act 1993, the landlord has two months to respond with a counter-notice. If they do not , the tenant may apply to the Court for a Vesting Order at which stage the landlord will no longer have a say in the lease extension process. Such an application must be made not later than six months after the date by which the counter-notice was required to be served.

Should the landlord respond within time, with a counter-notice, either party may apply to the Tribunal to make a decision on the terms of the new lease. Such an application may not be made less than two months, nor more than six months, from the date of service of the counter-notice. Once the Tribunal makes its decision it becomes binding, but should a party wish to appeal it must do so within 28 days. Otherwise, the landlord must provide a draft lease within 14 days of the decision and the parties must enter into a new lease no later than two months after the decision becomes final. If any of the aforementioned deadlines elapse without a new lease being signed off, the tenant must make an application to the court within two months in order to ensure that their notice of claim is not deemed to be withdrawn.

What if my Landlord is missing?

The tenant should take reasonable steps to find the landlord. Such steps would usually include advertising in the local gazette, and instructing a tracing agent or a private investigator to trace the landlord. If despite this, the landlord cannot be found, an application may be made to the court for a Vesting Order.

Any vesting order will provide for the surrender of the existing lease. Once the vesting order is made, the terms of the new lease will be decided by the Tribunal. A surveyor should have prepared a report on the valuation of the leasehold, which the tribunal will take into consideration, before making any decision on the premium that the tenant is to pay for the leasehold extension. Such a premium will have to be paid into court together with any sums that the tribunal orders to be paid. The lease will be signed by the tenant and the judge, and once executed the lease will have to be registered at HM Land Registry.

If the landlord is in fact found before the lease is extended the court may give such directions as it thinks fit as to the steps to be taken for giving effect to the rights and obligations of all the parties.

Earlier in this article it was stressed that the deadlines for entering into a new lease are strict. Interestingly, however, where there is no landlord and a Vesting Order has been made, the same deadlines do not apply. This does not mean that tenants should treat the process with less urgency, but it does raise the question: how many tenants have re-considered completing on a new lease because they believe they must complete within 2 months of the terms of the lease being agreed?

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