83 is the magic number
13 Jul 2023
The extension of leases of residential flats is a complicated area of law. At the time of compiling this article (June 2023) it is anticipated that in the forthcoming King’s Speech (not the movie!) in September 2023, the government will announce the intention to introduce legislation for Leasehold Reform before the next election.
Given the government’s previous announcements in this respect going back to 2020, one cannot be confident that their good intentions will be implemented before the next election.
If you are a Flat Owner or a Buyer seeking to preserve the value of your flat by making sure the Lease is long enough, you have something of a dilemma at the present time. If Leasehold Reform is implemented, the cost and timescale for extending a Residential Lease should become cheaper and easier. Therefore “wait and see” might be a good idea.
However, if you must deal with a flat in the meantime, you essentially have two choices:
- Wait and see whether the legislation is implemented and what it contains; or
- Bite the bullet and deal with your Lease Extension now rather than later.
A flat lease can be extended at any time as long as the Landlord and the Flat Owner agree.
However, in the absence of Landlord’s agreement, a Flat Owner who has been registered at the Land Registry as the owner of their flat for at least two years can claim an extended lease by serving a Section 42 Notice (“statutory lease extension”) under the Leasehold Reform, Housing and Urban Development Act 1993 (“the 1993 Act”). This compels the Landlord to extend the lease by 90 years , but the process can be time-consuming and expensive.
The flat owner can start the process and “assign” the benefit of the claim to a Buyer, enabling the Buyer to carry on the process even though the Buyer will not have been the flat owner for at least two years. There are however detailed and complicated provisions which need to be taken care of, needing specialist advice if this process is to be followed safely.
A key consideration for a statutory lease extension is how many years are left on the current Lease. Under current law, if the unexpired lease term is less than 80 years, the premium payable to a Landlord to extend the Lease will include 50% of “Marriage Value”. Marriage value can briefly be summarised as the aggregate value of the Freehold and the leasehold interests in the flat. In practice, it means that a Lease with less than 80 years to run will cost more to extend than if the lease term was longer.
If a Section 42 Notice is not given by the Seller and assigned to the Buyer, then the Buyer cannot serve a section 42 notice until two years after registration of their purchase at the Land Registry has been completed. At present, it is not possible to predict how long registration will take. It may take several months, although in practice it may often take less time.
If you are buying a flat, you should make sure there are at least 83 years unexpired if the seller is not going to serve a Section 42 Notice. That way, by the time the Land Registry complete your registration, there should still be more than two years left to run before the Lease drops to 80 years.
If you seek to sell the flat within the first two years of your ownership, you will not be in a position to commence a statutory Lease Extension, and by the time your Buyer has been the Owner for at least two years, the Lease may then have dropped below 80 years. Hopefully by then the government’s program of Leasehold Reform will have been implemented so it will not be a problem.
Nonetheless, if you are thinking of buying a flat, our advice is to get the Seller to serve a section 42 Notice if the unexpired lease term is not 83 years or more.
Even if Leasehold Reform is announced in the King’s speech, there is no guarantee that it will be implemented or what that form will take, but if it is not announced in the King’s speech, then at least you know that the Lease should be extended now rather than later.
For more information, please contact Andy Finkel at Andy.firstname.lastname@example.org