Leasehold House Lease Extension Process

19/09/2019
Leasehold house lease extension has similarities with the lease extension process for flats (click to find out more and please follow the link if you want to extend the lease on your flat) however there are key differences and there is huge importance in instructing a property lawyer with the right experience to help you achieve success as it is a niche area.

Needed:
  • Conveyancing Solicitors
Not needed:
  • Lease Extension Valuation (required for flats, not houses)

Leasehold houses are still comparatively rare in the UK property market although a considerable number of houses have been built and designated as leasehold in recent years, notably - and notoriously -  under the Help to Buy scheme.

Leasehold rules subject to change?

Please note that at press time, the Government has been examining many recommendations to overhaul the whole of leasehold in the context of residential conveyancing and to re-balance it more in the favour of the leaseholder.

This has come about not least because of recent scandals regarding leasehold houses and in particular, the doubling of ground rent in related leasehold contracts.

While there is no published timetable as yet for reforms to occur, it's worth noting that most experts assume that they will come on stream in the medium term at the longest.


As with flats you have the right both to extend your lease and to buy your house's freehold (click to find out more), and similarly you can take a formal statutory path or an informal one to doing so. However you should take careful advice concerning your best individual strategy: many leasehold house owners have opted to buy their freeholds rather than extend their leases, according to many reports, however this is a more expensive action and there are other factors to consider as well.

Please note that you must ensure that you have paid any rent or other charges due to your landlord, no amount outstanding, otherwise your application can be legally refused out of hand.

This article considers the following:



Want a 50-year Lease Extension for your Leasehold House?

Our expert property lawyers can help you with this niche area where experience counts for everything.

Although you don't have to pay a premium for the lease extension itself, our property lawyers act for you to best ensure that the costs you have to pay to your freeholder are reasonable and that your new leasehold contract is fair.

* Fixed Fee – No Sale No Fee – On all Mortgage Lender Panels


    1

    What legislation underpins lease extensions of leasehold houses?

The Leasehold Reform Act 1967 (click to view the original legislation) is the main piece of legislation which enabled leasehold house owners to extend their leases and/or buy their freeholds (enfranchisement).

This Act, like many however, has been amended over the years, with notable related revisions occurring within the Leasehold Reform, Housing and Urban Development Act 1993 and most recently the Commonhold and Leasehold Reform Act 2002 (click to view these Acts).

Proud of our reviews
google-logo.png

Fixed Fee, No Sale No Fee with a 5 out of 5 rating

I agree to the Terms of Service and Privacy Policy
 
    2

    What are the eligibility criteria for extending your lease on your leasehold house?

Please note that the following points concern residential property. When commercial buildings and leases are concerned there are many more factors and rules to consider.

The key criteria are as follows:
  • You have to have been the legal owner of the lease of the house for at least the two years immediately preceding your serving notice to your freeholder.
  • The original lease granted for the house has to have been a long lease i.e. for more than 21 years.
  • You can't yourself be leasing the house to a subtenant who themselves have rights (to extend or to buy) under the original 1967 Act.
Please note that there are other, sometimes complex, eligibility criteria involved, for example your rent must be classed as low rent and the house must have a rateable value below certain prescribed limits. These mean that you are highly advised to instruct a solicitor with appropriate experience to avoid any pitfalls.

You should also note that a number of types of lease are excluded from being extended, some notable examples of which are:
  • Leases where the letting the house is just an add-on to the letting of other land and premises.
  • Leases granted by a charitable housing trust for the purposes of its charitable functions.
  • Some shared ownership leases.
  • Leases of Crown land (even though the Crown can permit buying the freehold).
  • Some leases where your landlord is a local authority or other public body and the land is needed for development.

    3

    What is the leasehold house lease extension process (formal and informal)?


Formal Process

This process ends with you receiving a 50-year extension to your lease for no premium payable but you have to pay some of your landlord's costs and, when the original lease expires, you'll have to pay a 'modern ground rent' which will be considerably more expensive than your existing ground rent.

1 - Form 1 Tenant's Notice
You have to serve an appropriately completed and evidenced form officially known as a Form 1 Tenant's Notice (also known as a notice of tenant's claim) under of the Leasehold Reform Act 1967.

This has to state or provide:
  • that you're claiming an extended lease (rather than claiming to buy the freehold)
  • the name and address of the person you're serving the notice on (in most cases the freeholder)
  • whether a copy is being served on anyone else and if so, you have to provide their name and address
  • your signature (or a signed covering letter) or that of your authorised agent
  • signatures from both joint tenants if there is a joint tenancy
  • details of the property such as the address, identification evidence (title plan), the (long) lease and the date on which it was acquired, details about the rent to establish eligibility re: the rent test (mentioned above) and proof that the property's value doesn't exceed the relevant rateable value limit (also mentioned previously)
There are additional rules concerning whether other relevant parties must receive the notice and governing the service of the notice itself.

Unlike the case for Section 42 leasehold extension tenants' notices (for flats), if your freeholder disputes your notice's validity, you can normally serve a second notice without any sanction/disruption to your claim.


What if the landlord/freeholder had plans to sell the house and a right of first refusal applies?

Once a Form 1 has been received, a landlord's Section 5 Notice regarding the planned sale of a relevant property (the notice required given that tenants have a statutory right of first refusal to buy the block) has to refer to the fact that your notice to extend your lease has been received (click for more information).


After you've served your tenant's notice, the lease is automatically continued for 3 months after the end of the 'currency of the claim'*, even if the tenant's claim to buy the freehold or extend its lease is invalid or if the notice was served by someone other than the tenant. 

*What is the 'currency of the claim'?

This is the period starting on the date that you gave notice and ending on either the date your lease extension is granted or the date the notice ceases to have effect because it's been either withdrawn or set aside by the court.

During this period, even if the original lease has run down or the landlord has served notice to quit, the lease cannot end.


2 Continuing process and required timelines
Now once you've served your notice, the underpinning legislation views you as having a contractual relationship with your landlord/freeholder where they have to provide you with your requested lease extension. Ensuing conditions are as follows:
  • Your landlord can serve notice on you requiring you to prove your title to the lease and you have 21 days after you've been served this notice to respond.
  • If your landlord has served a Notice in Reply or hasn't served one within 2 months of receiving your claim, you can, by further communication, require the landlord to state what changes to the terms of the existing lease it will require and what other terms it will be seeking in the new lease.
    The landlord must respond to your further notice within 4 months.
  • The landlord prepares your draft new lease and, once you've received it, you must return it, with or without amendments, within 21 days; if you don't do this it's assumed that you approve of the draft.
  • After this 21-day period has expired, either you or your landlord can serve notice requiring completion of the lease extension. Completion then takes place on the first working day after a period of 4 weeks from the giving of the notice has expired.
  • If either you or your landlord doesn't fulfil your required obligations, either of you can serve a minimum of two months’ notice specifying the default and requiring it be made good before the expiry of the notice.

3 What costs do you have to pay?
Most importantly, you don't pay any premium for your lease extension (unlike the statutory process for a lease extension on a flat) however:
  • you have to pay your landlord's legal costs for investigating your right to extend your lease;
  • you have to pay for the costs of the new lease (but not the landlord's costs for negotiating its terms with you); and
  • you have to pay for the valuation of the extended lease which is, in part, required to calculate the 'modern ground rent' that will be payable when the 50-year term starts.

4 What happens when your landlord is missing or unidentifiable?
You cannot apply for a lease extension in the way described. You must apply to the county court for a vesting order (click to find out more).

Once you've applied to the court, your claim goes ahead even if your freeholder is subsequently identified. The county court has jurisdiction to make an order on such terms as it thinks fit, if it is satisfied about your eligibility to extend your lease (or buy the freehold).

The Residential Property division of the First-tier Tribunal (Property Chamber) in England and leasehold valuation tribunals in Wales have jurisdiction to determine any rent payable up to the date of the conveyance, which you pay to the court. The court has no power to order that your costs are set off against the amount paid into court: you have to pay the entire cost of your application.

The Formal Route:

  • Gives you a 50-year extension to your original lease (if and when completed).
  • You don't have to pay a premium for the lease extension; however
  • You do have to pay your landlord's valuation and conveyancing costs; and
  • The new lease requires that a 'modern ground rent' will be payable for the 50 years of the new lease: this modern ground rent can be considerably more expensive than the original ground rent
  • You can only ever extend the lease on a leasehold house (50 years) once but doing so does not interfere with your right to buy the house's freehold subsequently.


Informal Process

There is nothing to stop you negotiating a informal lease extension on your leasehold house with your landlord, however in essence there's no legal protections. Please read Informal Process: What are the Pros and Cons to see how the two compare in the case of lease extensions for flats.

Pros
  • Might prove quicker to complete than the formal process
  • Might prove cheaper than the formal process
  • There might be flexibility in the number of years extra you get on your lease

Cons
  • Might be more costly than the formal process; unless you take professional advice you are operating 'in the dark'
  • No surety at all of success
  • Your new extended contract might be loaded with unfavourable clauses
  • If negotiations stall, you'll lose anything you've invested in the process up to that point

    4

    What alternatives do you have instead of extending your house's lease?

As mentioned a number of times, if you are eligible to get a lease extension on your leasehold house then you are invariably eligible to buy its freehold as an alternative.

The main attraction here is that you'll no longer have to pay any form of ground rent however it might be a much more expensive option than going for a lease extension. Additionally, you might find that the landlord/freeholder can still impose service charges on you because they might have the right to continue looking after the communal areas if they own the whole estate your house is built on.

Please read Buying the Freehold of a Leasehold House to find out more about this option; there is considerable crossover with lease extensions because the process is derived from the same legislation.

 
    5

    Appendix: Modern Ground Rent Calculation

What follows gives some indication of the highly involved complications required for extending houses' leases; it is purely for information and illustrative purposes and should not be taken as an 'instruction manual': you are always advised to seek appropriate legal advice from a suitably qualified practitioner.

The modern ground rent calculation depends on a number of underpinning factors such as the property passing a low rent test and falling within permitted rateable values.

Low rent test

A rent is considered a low rent if it is either of the following:
  • In relation to a tenancy entered into before 1 April 1990 (or on or after 1 April 1990 in pursuance of a contract made before that date) and which had a rateable value other than nil at the date of commencement of the tenancy or else at any time before 1 April 1990, an annual rent of less than two thirds of the rateable value of the property on the “appropriate day”, or the first day of the term granted by the tenancy, if later.
  • In all other cases, an annual rent of £1000 or less for a property in Greater London or £250 or less for a property elsewhere. (Section 4, LRA 1967, as amended by the References to Rating (Housing) Regulations 1990 (SI 1990/434).)
The “appropriate day” is 23 March 1965 (section 4(1)(a), LRA 1967).

Rateable value

To qualify for the right to a lease extension, the house must have a rateable value (or notional equivalent) below the prescribed limits.

The rateable value limits vary, depending upon the date of the grant of the lease. In February 2012, the government announced that, subject to the results of an impact assessment, it intends to legislate to increase the value limits to take account of inflation and increases in property values since the limits were set in 1990.

The relevant local authority will be able to confirm the rateable value of the property.

The modern ground rent is a figure calculated from the valuation of the property (which will have had to pass the 2 tests mentioned above) however there are 2 different possible valuation methods, the original valuation basis and the special valuation basis. In what follows, much is of more relevance to buying the freehold but the modern ground rent calculation runs alongside.


Original valuation basis

If the house qualifies for the right to buy pursuant to section 1 of the LRA 1967, the original valuation basis will apply. Therefore, if the lease meets the original low rent test and the rateable value (or notional equivalent) of the house is below certain limits (which vary depending upon the date of grant of the lease), then the valuation will be conducted pursuant to section 9(1) of the LRA 1967.

The original principle behind the LRA 1967 was that the landlord owned the site, but the tenant owned the house that stood on it. Therefore, the landlord would be left with a vacant site which could be let at a “modern ground rent” when the lease comes to an end and this is the interest valued for the original valuation basis.

The original valuation basis also assumes that the tenant has exercised its right to a lease extension under the LRA 1967.

There will be no marriage value to pay under the original valuation basis (see Marriage value).

Therefore, the valuation can be broken down as follows:
  • The value of the landlord’s right to receive rents for the remainder of the term of the current lease.
  • The value of the landlord’s right to receive a modern ground rent for the assumed 50 year extension.
  • The value of the landlord’s reversion of the site, but not the house, at the expiry of the assumed 50 year lease extension. (Section 9(1), LRA 1967.)

Special valuation basis

The special valuation basis will apply if the lease exceeds the rateable value and the rent limits set out in section 1 and 4 of the LRA 1967, and the tenant is dependent on the recent amendments to the LRA 1967 in order to qualify for the right to buy (section 9(1A), LRA 1967).

The price payable under the special valuation method is the open market value of the freehold interest (subject to the lease) of the site and the house. This is different from the original valuation basis, which values the site without the house. The price is reduced by the value of any improvements the tenant has carried out to the house and premises at its own expense (section 9(1A)(d), LRA 1967).

Marriage value will also be payable in the following situations:
  • If the lease has an unexpired residue of 80 years or less, then the tenant has to pay half the marriage value.
  • If the unexpired residue is more than 80 years then the marriage value is deemed to be nil and none is payable.
In some cases where the special valuation basis applies, compensation is also payable if enfranchisement lowers the value of the landlord’s other land (section 9(1A) to (1E), LRA 1967).

Where the special valuation basis applies and the tenant is exercising the right to buy the freehold after it has already been granted an extended lease pursuant to a notice to extend given before 5 March 1986, the tenant is part of a limited class where it will be assumed that the freehold is subject to the extended lease (as opposed to being subject to a lease that expires at the end of the original term).

Want a 50-year Lease Extension for your Leasehold House?

Our expert property lawyers can help you with this niche area where experience counts for everything.

Although you don't have to pay a premium for the lease extension itself, our property lawyers act for you to best ensure that the costs you have to pay to your freeholder are reasonable and that your new leasehold contract is fair.

* Fixed Fee – No Sale No Fee – On all Mortgage Lender Panels

Related News Articles

 
Buying the Freehold of a Leasehold House
06/08/2019
Informal Lease Extension Process - What are the Pros & Cons?
25/10/2019
Lease Extension Process
14/11/2019
new-conveyancing-process.png

FREE Online Conveyancing Process for Buyers

Includes online checklists, videos, downloads and tips - plus it is completely free to use from start to finish and saves your progress along the way.