Lease extensions

Flats and apartments in England and Wales are usually sold on the basis of a long lease. This gives the flat owner the right to use the flat for a considerable period of time, often over 100 years. Most long leases will impose an obligation on the leaseholder to contribute to the upkeep of the building in which the flat is situated by payment of a service charge.

If a long lease of a flat or apartment has less than 70 or 80 years left to run, it can be difficult to sell or mortgage. This is because a lease is a 'wasting asset'. This means that for every year that passes, there is less time to run on the lease. The law protects long leaseholders in this circumstance and gives eligible leaseholders the right to extend their lease by 90 years (and have any ground rent reduced to a nominal amount). There is a statutory process to follow and the leaseholder will have to pay the landlord a sum of money to extend the lease.

Increasingly, it seems that estate agents and other parties involved in the process of selling flats give the impression to sellers and buyers that the process to extend or change the terms of the lease is straightforward. This is often very far from the truth.

It is necessary for the lease to be extended using a deed which must be carefully drafted. The terms of this deed are often negotiated between the leaseholder and the landlord at the time the price payable to the landlord is being established. The main clauses of the lease which need to be changed are the provision which adds a further 90 years to the existing length of the lease and the ground rent which is reduced to a nominal sum. It is generally not open to the landlord to impose new terms and obligations on the leaseholder over and above those in the original lease.

A recent court case has highlighted the potential problems. During a lease negotiation, the landlord tried to insist on imposing an entirely new lease on the leaseholder. This proposed new lease included a significant number of new obligations and liabilities. Unsurprisingly, the leaseholder objected to this and in the ensuing court case, their argument succeeded. The court held that the landlord was not entitled to insist on an entirely new lease.

The case is a reminder of the complexity of the law and practice in this area. It is essential for a leaseholder of a flat or apartment to obtain specialist advice to ensure that their rights are protected.

To discuss this or any other property matter, contact us.