Lease extensions are becoming more and more common nowadays as the unexpired term of leases granted in the 1980s and 1990s is often falling below 80 years.
However, rumour has it that the current extension regime may be changing considerably. The previous Conservative Government committed to implementing major reform of the lease extension procedures, and their proposals were included in the Leasehold and Freehold Reform Act 2024 (“the Act”) which received Royal Assent on 24 May 2024. The proposals included:
- The standard term for an extension to be 990 years.
- The qualification period of 2 years to be removed.
- Marriage value to be abolished.
- The introduction of a statutory calculation to determine the premium payable.
- Ensuring leaseholders are not subject to any unjustified legal costs and can claim their own legal costs from their freeholder.
Secondary legislation will be required to put these proposals into force and, therefore, there is still uncertainty about when, if ever, some of the provisions of the Act will come into effect. The Labour Government has stated that there are serious flaws in the Leasehold and Freehold Reform Act 2024. However, it has reiterated its commitment to leasehold reform and, in a statement given to the House of Commons on 21 November 2024, Matthew Pennycook, the Minster for Housing and Planning set out the steps which the government intends to take to implement both those reforms already in statute and also a wider set of reforms.
In Summer 2025 the government intends to commence consultations on the valuation rates used to calculate the cost of enfranchisement premiums and the removal of marriage value from the calculations. Once those consultations are concluded, Parliament will need to approve secondary legislation that sets out the detail as well as introducing further primary legislation before the whole package can be implemented.
We will need to continue to “watch this space” to see if and when all of the provisions of the Act come into force - but in January of this year the first of the Act’s reforms was brought into effect. As from the end of January 2025 there is no longer a requirement for leaseholders to own a property for two years before being eligible to extend their lease or apply for a collective enfranchisement process.
At present there are three types of lease extension: statutory, voluntary and shared ownership and these are discussed in more detail below.
Statutory Extensions
Statutory extensions are granted under the Leasehold Reform Housing and Urban Development Act 1993. A statutory extension is for an additional 90 years. Ground rent will become a peppercorn on completion.
Deadlines for Statutory Extensions
The deadline for replying to the Section 42 Notice must be at least two months from the date of the Notice (REMEMBER: if the Counter-Notice is not served within the period allowed the Lessee can apply to the First Tier Tribunal (FTT) for a Renewal Lease to be granted at the premium offered in the Section 42 Notice).
If the Landlord requires further information from the Lessee in order to reply to the Section 42 Notice there is a period of 28 days in which to request it.
The premium and terms of the Renewal Lease should be agreed within 6 months of the date of service of the Counter-Notice (although the Lessee can apply to the FTT once 2 months has passed).
The matter should complete within four months of agreement of the terms.
If a deadline is missed by the Landlord the Lessee can apply to the FTT to progress the matter.
If a deadline is missed by the Lessee then the Lessee’s claim can be deemed to be withdrawn and they are then barred from re-applying for 12 months from the date of withdrawal. The Lessee would still be liable for the valuation and legal costs.
Voluntary Extensions
There are no rules on a voluntary extension and, therefore, the Landlord is at liberty to agree whatever terms suit them. It is still usual for an extension to be for 90 years, but a shorter or longer extension can be agreed. As with a statutory extension any ground rent will become a peppercorn on completion.
Shared Ownership Lease Extensions
At present shared ownership lessees have no statutory right to extend but the Homes England guidance is that Landlords can, and should, consider granting an extension when required on a voluntary basis. The premium will reflect the percentage owned by the Lessee.
In all cases, currently, the legal costs, the Landlord’s administration fee and the valuation fee will be payable by the Lessee. However, any valuer’s fees incurred in negotiating a premium (following service of the Counter-Notice) are not recoverable from the Lessee.
The information provided in this article is provided for general information purposes only, and does not provide definitive advice. It does not amount to legal or other professional advice and so you should not rely on any information contained here as if it were such advice.
Wright Hassall does not accept any responsibility for any loss which may arise from reliance on any information published here. Definitive advice can only be given with full knowledge of all relevant facts. If you need such advice please contact a member of our professional staff.
The information published across our Knowledge Base is correct at the time of going to press.
