Statutory lease extensions in relation to flats
What is a lease extension?
A long leasehold interest in a property reduces in value over time. A statutory lease extension provides tenants with a right to extend the term of the lease, relating to a residential flat, if a voluntary lease extension cannot be agreed with a landlord, if certain criteria is fulfilled.
What legislation governs a lease extension of a flat?
The Leasehold Reform Housing and Urban Development Act 1993 (as amended by the Commonhold and Leasehold Reform Act 2002) (“LRHUDA”) grants a qualifying tenant a statutory right to a new lease of their flat once they have leased it for two years.
This right can be used an unlimited number of times.
What are the requirements to qualify for this right?
To qualify, a tenant must meet the following conditions on the date the claim is made:
- The tenant must hold the property under a long lease (i.e. originally granted for a term of more than 21 years) and must have been the legal owner of the lease for a minimum of two years
- The property must be a flat in a qualifying building (excluded buildings can be found in Sections 94-96 of the LRHUDA)
There can only be one qualifying tenant at any one time If a tenant’s landlord is a charitable housing trust, and the property is provided as a part of the charity’s work, then the tenant will not qualify. The current lease must not fall within those circumstances set out in section 5(2) and 39 of the LRHUDA.
Some properties are completely excluded:
- buildings within a cathedral precinct;
- National Trust properties;
- The freehold includes any track of an operational railway, including a bridge or tunnel or retaining wall to a railway track;
- Crown properties*.* Although the Crown is not bound by the legislation, the Minister has made a statement to the House of Commons that the Crown will be prepared to comply with the principles of it.
What is regarded as a ‘flat’?
A flat is defined in s101 of the LRHUDA as:
"a separate set of premises (whether or not on the same floor):
(a) which forms part of a building, and
(b) which is constructed or adapted for use for the purposes of a dwelling, and
(c) either the whole or a material part of which lies above or below some other part of the building."
How does a tenant exercise this right?
A tenant will need to serve a notice of claim on the competent landlord (i.e. the landlord with the ability to grant the lease extension) and any third party to the tenant’s lease. Section 42 of the LRHUDA sets out the requirements of the notice.
The landlord must respond to the claim notice by counternotice within twenty-eight days. The landlord can ask for extra information but must do so within twenty-one days of receiving the claim notice. The tenant must provide the information requested within twenty-one days.
If the landlord does not serve the counternotice by the date specified in the claim notice (which must be at least two months from the date of service of the claim notice), a tenant can apply to the court for a vesting order within six months.
Once the landlord’s counternotice has been served either party can apply to Leasehold Valuation Tribunal for a decision. This application cannot be made any earlier than two months from the date of service of the counternotice but should be made within six months of this date.
The parties have a right of appeal the Upper Tribunal (Lands Chamber) but can only appeal with the Tribunal’s permission. The parties have two months to enter into the new lease from the date of the final decision. If the lease is not entered into, the tenant has a further two months to apply to the court to order the landlord to meet its obligations.
Once a notice of claim is served the tenant will be liable for the landlord’s reasonable professional fees from the date of service of the tenant’s notice, whether or not the application is successful.
It is essential that the notice is registered against the landlord’s title at the Land Registry after it has been served to protect the tenant’s position.
The landlord can provide the tenant with a counternotice and apply for an order to stop a lease extension where the term of the tenant’s lease is to end within 5 years from the date of the claim and they have certain reasons for opposing the claim as set out in section 47 of LRHUDA.
If a tenant applies to extend a lease and an application is then made by the other tenants to purchase the freehold using the collective enfranchisement procedure, the lease extension claim will be suspended.
What provisions will the new lease include?
- The term shall be 90 years in addition to the remainder of the term in the current lease
- A premium shall be payable
- The rent will be a peppercorn
- On the same terms as the current lease (except for any modifications as set out in section 57 of the LRHUDA)
What about a purchase price?
A one-off premium will be payable for the new lease in addition to the rent of a peppercorn. Provisions dealing with how this premium is calculated can be found in Schedule 13 and section 56 of the LRHUDA. The valuation date will be fixed as at the date of the claim notice.
If after reasonable efforts, the landlord cannot be found, this will not prevent a tenant from applying for a lease extension.
If the landlord is a company that is in receivership, a claim notice should be served on the receiver. If the landlord is an individual who is bankrupt, a claim notice can be served on the trustee in bankruptcy.
If the landlord is absent, an application can be made to the county court for a vesting order to extend the lease. If the court is satisfied that a tenant is eligible for a new lease, it will grant the lease extension in the landlord’s absence. The court will usually refer the case to the Leasehold Valuation Tribunal to determine the premium.