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Posted: 31st January 2017

Lease Extension Valuations from Woodward Chartered Surveyors

If you are a qualifying leaseholder, you will have the right to claim an extension of your existing lease of an additional 90 years at a “peppercorn” rent (effectively rent free).

Your statutory right is contained in the Leasehold Reform Housing and Urban Development Act 1993 (as amended) and this legislation sets out the procedures which must be followed by a flat tenant to claim this right.

Here we explain briefly the procedures involved in exercising your statutory right to claim a lease extension.

Qualifying requirements

Briefly, in order to compel a landlord to sell a lease extension the building must be:


And the flat tenant must have:

 

What a Lease Extension Valuation by a Chartered Surveyor includes:

The Valuation
The valuation completed by your surveyor is not just an estimate of what the flat will sell for today, but a complex calculation that includes assumptions made by Statute and precedents made by court tribunals in previous cases.

The surveyor will arrive at a likely range of values often thought of as a “best case and worse case scenario”.

It is important to remember that the surveyor's inspection is not a survey or valuation for any other than this special purpose.

Procedure
Once you have received your valuation, a Notice Of Claim can be served on the freeholder. This can be assigned with the lease when the flat is sold so that a buyer can proceed without the need to meet the 2 year qualifying period.

Costs and Finance
As you are compelling the freeholder to sell an extended lease to you, you will be responsible for your own professional fees and those of the surveyor and solicitor working for the freeholder.

If you withdraw after serving Notice, you will still be liable for all such professional fees incurred up to that point.

Your finance arrangements should therefore cover not only the premium for the lease extension, but also professional fees.

Once the Notice has been served the freeholder is entitled to require a 10% deposit (£250 minimum) to be paid.

The Notice
The “Notice of Claim” needs to be absolutely correct and is usually done by a solicitor who will gather certain information to avoid mistakes. An incorrect Notice will mean waiting another 12 months before claiming again and maybe a higher premium.

Counter Notice
After the lessee's Notice has been served the freeholder has 2 months in which to reply with a “Counter Notice”. In most cases the freeholder will admit the claim, but proposes a higher premium.

Negotiations
Often negotiations take place between the lessee and the freeholder to avoid the necessity of applying to the Leasehold Valuation Tribunal (LVT) to force a decision on the parties.

It is generally in the parties interest to agree a negotiation as the costs of an LVT hearing are not recoverable (except in extreme circumstances) against either party.

Leasehold Valuation Tribunal
If the lessee and freeholder cannot agree the premium or perhaps some other term, either can apply to the Leasehold Valuation Tribunal (LVT) for a determination of those outstanding terms.

This must be done no earlier than 2 months and no later than 6 months after the date of service of the Counter Notice by the freeholder.


The paperwork
Once agreement is reached or decided upon, the form of extended draft lease will be negotiated between the solicitors for the lessee and freeholder. This also provides an opportunity to correct any flaws in the original lease.

If you have a mortgage on the property your lender will need to consent and will require a deed of substitute security to be put in place. Your solicitor will handle these matters.

Important Note
This Fact Sheet is intended as a brief guide only and does not seek to summarise all of the provisions of the legislation which is complex. It should not be relied upon by you and you should take specific professional advice relating to the particular circumstances of your own case.

 

GLOSSARY of terms used in a Lease Extension Valuation :

Premium
The one-off sum paid in consideration of the lease extension.

Lessee
The person who holds the lease, i.e., the flat owner. Sometimes referred to as the Tenant or Leaseholder.

Freeholder
The person or body to whom the property would return if the lease reached the end of the term. Sometimes referred to as the Landlord or the Lessor.

Rent / Ground Rent
The sum payable, usually annually as part of a lease.

Peppercorn
Used to describe a rent that is so small it is not collected.

Section 42 Notice
The notice a lessee serves on a freeholder.

Term
The number of years of the lease.

Reversionary Yield
The investment value of the unexpired term of the lease.

Marriage Value
The increase in value of the lease by virtue of obtaining a longer lease.