Leasehold extension, new law. Advice needed!

arunadasi

Hello all, I'm hoping you can advise me here.
Earlier this year, I applied for a lease extension for my flat, which I have had since 2004. The lease is now down to 49 years so I need to extend it, especially since I plan to sell the flat this year. The flat was rented until mid-May; the tenants have now moved out, so it is empty. I applied for an extension to 90 years.

The new law on leaseholds went into effect on 24th May.

https://www.gov.uk/government/news/leasehold-reforms-become-law

I really was not expecting this so soon! Everyone I spoke  to, including my estate agent, thought it would take until at least the end of the year to pass, if at all.

So now things have changed. I've been advised by my estate agent to withdraw the application for the 90 year extension and submit a new application for longer.

Lease extensions are supposed to be much cheaper with the new law. Supposedly, it will take some time before everything is figured out. I was hoping to put the flat on  the market asap, since I no longer have the rental income. I'm a little at a loss as to what to do, as I'm very much an  amateur on all things property market! Could someone with some knowledge chime inhere, and tell me what to expect? What to do?

Thanks in advance!

eddddy

So presumably you are currently applying for a Statutory Lease Extension.  (That doesn't extend your lease to 90 years, it adds 90 years to your lease - so it will be 139 years in total.)

And you're talking about changes in The Leasehold and freehold reform act 2024

Unfortunately, things don't seem to be as clear-cut as your estate agent suggests...

• Current Government guidance is that the reforms will come into effect in 2025/2026 - so you'll have to wait until then to re-apply.

• If you withdraw your current lease extension application, the current law is that you'll have to wait a year until you can start a new application (and I don't think that's changing in the new act).

• If you withdraw your application you'll still have to pay your freeholder's legal and valuation fees - as well as your own legal and valuation fees. So that's probably in the thousands of pounds.

• The new act abolishes Marriage Value - which should make your lease extension cheaper. But some freeholders are claiming that infringes their human rights, and they are threatening to challenge the government in court. So that might be reversed.

Presumably you have a solicitor advising you. I think you should ignore your estate agent, and ask your solicitor for advice.

arunadasi

Thanks, very informative. I will do that. I haven't got a solicitor yet but will need one anyway so might as well start now!

eddddy

So just to clarify - how have you gone about applying for a lease extension?

I assumed it was a Statutory Lease Extension - which starts with serving a section 42 notice. If so, who drafted the section 42 notice, if you don't have a solicitor? Did you do it yourself?


Or is it an informal lease extension - where you and the freeholder have informally agreed terms? If so, what terms have you agreed (e.g. price lease length, etc)?

 

Jonboy_1984

You say you have applied to extend the lease TO 90 years, does this mean you have simply approached the freeholder and asked for a price to extend?

RHemmings

If you have a short lease, then it's possible that a statutory extension will be cheaper once the bill comes into law. There is some suggestion (no more, that I am aware of) that extending leases longer than 80 years may become more expensive. There is some discussion that there might be legal challenges to some aspects of the law. It's all quite complicated. 

More information here: https://hoa.org.uk/advice/guides-for-homeowners/for-owners/leasehold-reform

arunadasi

Hello, sorry I took so long to reply to your helpful comments! I have been travelling a bit.
To answer questions, I applied to the freeholder for a lease extension. I have just received a reply, which I have pasted below.
I now see that it was foolish to ask for 99 years. I should have extended it by 50 years, to bring the lease up to 99 years, which is surely enough for any new purchaser, especially in light of the reform. I assume the costs would have been much  lower! Please advise me how to proceed. I really am a novice in all this. It has taken time to get this response, and  in the meantime my tenants have moved out so I am not receiving rent, so it's costing me a lot!
If I refuse this offer and apply again for a shorter lease extension, I assume it will take a few more months again.

I am actually considering re-renting the flat and not selling until 2026, by which time I might be able to pay off the mortgage and not sell at all after all. It's a bit of a conundrum! I should have asked for advice here before applying for the extension.

Here is the letter:


Thank you for your enquiry regarding a lease extension.
I would have to take our Client's instructions but would be prepared to recommend them to enter into a
Deed of Variation, on the following terms:-
1. The Landlord to grant to the current leaseholder an extension to the term from 99 years to 175
years from 11th June 1974 (which would leave 125 years unexpired from 11th June 2024).
2. The Leaseholder to pay a capital consideration of £49,000.
3. The ground rent to continue as per the current lease for the duration of the current term and
thereafter be one peppercorn per annum.
4. The Leaseholder to pay the Landlord's Surveyor's fees and disbursements, in the sum of £950
plus VAT, payable whether or not the matter proceeds to completion.
5. The Leaseholder to pay the Landlord's legal costs and disbursements, including VAT, payable
whether or not the matter proceeds to completion.
6. The extended lease is to include other matters of a relatively minor nature, so as to modernise
the lease as considered appropriate by the Landlord’s Solicitors. This is likely to cover such matters
as; updating the fee for Notices, providing for payment of Landlord’s costs in respect of breaches of
covenant and interest on arrears of rent and other charges.
7. These terms are offered an a SUBJECT TO CONTRACT & WITHOUT PREJUDICE basis and
are available on the condition that completion will be no later than 29th August 2024.
If you are interested in proceeding upon these terms perhaps you would let me know so that I may take
our Clients' formal instructions prior to instructing their Solicitor

eddddy

Who exactly is that letter from? The freeholder's solicitor, or their valuer or somebody else?


So taking a step back...

There are 2 ways of arranging a lease extension...

• The statutory route (where the law specifies lots of rules)
• The informal route (where there are no rules, the freeholder and leaseholder can negotiate whatever terms they like)

You are currently following the informal route.

Whether £49k is a fair price depends on what a Statutory Lease extension would cost.


The main challenge seems to be that you seem to know very little about lease extensions, but you're negotiating with a team of professional people who know lots about lease extensions - and probably know lots of 'dirty trick's as well.


As an example, this is a little bit of a 'dirty trick'... the freeholder/landlord wouldn't be allowed to do this with a Statutory Lease extension:

arunadasi said:

6. The extended lease is to include other matters of a relatively minor nature, so as to modernise
the lease as considered appropriate by the Landlord’s Solicitors. This is likely to cover such matters
as; updating the fee for Notices, providing for payment of Landlord’s costs in respect of breaches of
covenant and interest on arrears of rent and other charges.

(As a minimum, you could try to protect yourself by saying that you want a full list of the landlord's proposed changes, before you will commit to paying any fees. And then you can decide whether the changes are acceptable.)

But if the landlord is really nasty, they could play much dirtier tricks along the way, such as:

• Demand other significant changes to the lease (which they haven't warned you about)
• Increase the price of the lease extension
• Generally mess about for months or years, with no real intention of giving you a lease extension

Or on the other hand, your landlord might be reasonable and fair, with no intention of doing that kind of thing. 


It might be a good idea for you to hire a lease extension valuer and lease extension solicitor to advise you on this before moving forward - although that will probably cost you around £1.5k to £2k.

eddddy

... and back to your original question...

You have a 49 year lease, so if you wait a year or two for the new act to be implemented, the lease extension should be cheaper.

(Unless the new act is successfully challenged in court - in which case the lease extension might end up more expensive.)

Or you can use that as a basis for negotiation... for example, (I'm using 'made-up' numbers) you could say to the landlord...

• "Under the current act, you would get £50k for a statutory lease extension"
• "Under the new act in a year or two, you'd probably get £25k for a lease extension"
• "So I'll offer you £30k today for a lease extension - so you get an extra £5k and you don't have to wait 2 years"

(The benefit to you being that you can get the lease extension now, and sell the flat now - instead of having to wait 2 years to sell.)

Grumpy_chap

eddddy said:

You have a 49 year lease, so if you wait a year or two for the new act to be implemented, the lease extension should be cheaper.

I don't know what the new act says, or whether the new act will ever come into force - as mentioned there could be legal challenges and / or a change of political direction for the country which might impact anything that has not yet come into force and could make it better or worse for the OP.

In the absence of any changes that might come about through any changes in law, as the remaining period on the lease falls below 85 years (mortgageable) and tends towards zero, the value of the lease extension tends to increase exponentially.  At 49 years, or 47 years in a couple of years time, the OP is into a fairly steep part of that extension graphs.

eddddy

Grumpy_chap said:

I don't know what the new act says, or whether the new act will ever come into force - as mentioned there could be legal challenges and / or a change of political direction for the country which might impact anything that has not yet come into force and could make it better or worse for the OP.

The Leasehold and Freehold Reform Act 2024 became law on 24th May.

It had cross-party support, so it's unlikely that a new government would rush through new legislation to undo it.  But a new Government will control how quickly it is implemented.

• It abolishes marriage value. 

• It also makes the freeholder liable for their own costs (which might save leaseholders a thousand or two).

Those parts of the act are expected to be implemented at the end of 2025 or 2026.


The risk is that some freeholders are threatening to take the government to court - arguing that abolishing marriage value infringes their human rights.

But as you say, under the current 'rules', the cost of a lease extension will escalate quickly for a lease with 49 years remaining.

However, many people seem to be advising that if your lease is under 80 years, you should wait for the reforms.