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articles > Buying/Selling a Short Lease Property - Can I Extend the Lease?
Article > Buying/Selling a Short Lease Property - Can I Extend the Lease?

Article kindly provided by Katie Cohen

www.jpclaw.co.uk

 

 

A brief overview of the law

The Leasehold Reform, Housing and Urban Development Act 1993 (“the Act”) enables most lessees in England and Wales to obtain a 90 year extension to the term of their lease so long as they have owned their property for 2 years.

The process is initiated by the lessee serving a Section 42 Notice (“the Notice”) on the landlord and claiming the right to extend their lease by a further 90 years in addition to the unexpired term of their lease at a peppercorn rental.

A premium is payable to the landlord for the lease extension which increases considerably when the unexpired term of the lease is less than 80 years.

Why should I extend my lease?

As the length of the unexpired term of a lease gets shorter, the premium payable increases.

If a lease has less than 80 years unexpired then marriage value is payable to the landlord, which could be significant.

A lessee may encounter difficulties if they want to sell their flat if the unexpired term is considered unmortgagable. Different lenders have different criteria but generally require an unexpired term of at least 70 years.

What is marriage value?

This is the potential for increase in the value of the flat arising from the grant of the new lease. The Act requires that this "profit" shall be shared equally between the landlord and the lessee.

The lessee and the landlord's valuers will rely on local knowledge and experience to assess the increase in value in the flat arising from the new lease.

How do I sell a flat with a short lease?

If a lessee is selling a flat is willing to serve a Notice on the landlord to acquire a lease extension and to assign the benefit of the notice to the buyer upon completion, an experienced firm is needed to act for each party. A seller willing to serve a Notice will find that this greatly assists saleability.

Service of a Notice upon the competent landlord, who will in most cases be the freeholder, is undertaken commonly after exchange. Upon completion, the seller and buyer execute a Deed of Assignment of the Benefit of the Notice. This is not the same as a Deed of Assignment. The Deed enables the buyer to step into the seller’s shoes upon completion and continue with the lease extension process as if the buyer had owned the flat for 2 years.


I want to buy a flat with a short lease, can I extend it at the same time?

Ideally a prospective buyer looking to buy a leasehold title which has 83 years or more unexpired on its term so that they are in a position should they choose to do so following completion to apply for a lease extension. Note that they would need to wait for 2 years from the date of registration at the Land Registry should they decide to extend your lease after the purchase of the property.

If a prospective buyer is looking to buy a leasehold property which has between 80 and 82 years unexpired on its term, it is advisable to ascertain whether the seller of the property is in a position to serve a Notice on the freeholder or intermediate landlord to extend the lease and to assign the benefit of that Notice to the buyer on completion.


What documents are required?

Whether a prospective buyer or seller, a Notice will always be served on the landlord. This should be drafted carefully to ensure that there are no inaccuracies or typographical errors. There is no standard form and it is advisable for specialist legal and valuation advice to be sought prior to service on the landlord.

Certain clauses will be included within the sales contract providing for the seller to serve a Notice and for the buyer to be responsible for all ongoing costs in connection with the lease extension.

Further, the buyer and seller will execute a Deed of Assignment of the Benefit of the Notice. This has to contain specific wording that will contemporaneously assign the lease and the benefit of the Notice to the seller on completion to enable the buyer to assume the rights of the seller and continue with the lease extension.


What should I do now?

Enfranchisement is a complex field of law which should be undertaken only by specialist leasehold enfranchisement solicitors and specialist valuers.

If the Notice is invalidly assigned to the seller on completion and the lease falls below 80 years, the premium will increase considerably. Further, the buyer will be unable to pursue a statutory lease extension until they have owned and been the registered proprietor of the flat for 2 years. This can be costly both to the solicitor who gets it wrong and to the buyer who has to wait.

In short, take proper advice to avoid the many potential pitfalls.


Katie Cohen
www.jpclaw.co.uk
Enfranchisement Department
kcohen@jpclaw.co.uk
020 7644 7261

Katie completed her law degree at the University of Birmingham and undertook the LPC at the College of Law in London. In 2007, Katie qualified at West End Firm Howard Kennedy whereupon she worked at Roiter Zucker before joining the newly formed Jaffe Porter Crossick LLP.

Katie’s practice focuses on leasehold enfranchisement. Katie acts for both landlords and tenants in all aspects of enfranchisement including collective enfranchisements and lease extensions under the Leasehold Reform, Housing and Urban Development Act 1993, purchases of freeholds under the Leasehold Reform Act 1967, right to manage, right of first refusal under the Landlord and Tenant Act 1987 and voluntary freehold sales and lease extensions.

 

 

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