Lease extensions

 

Broadwalk House, Kensington, a prestigious purpose built block where we have dealt with several lease extensions

Eaton Place, Belgravia, where we have acted for tenants in more than a dozen flats

A leaseholder’s right to acquire their freehold was given to owners of houses under the Leasehold Reform Act 1967. It was not until the Leasehold Reform, Housing and Urban Development Act 1993 that the owners of flats and maisonettes were given what were considered to be equivalent rights.

The rights conveyed by the 1993 Act are not actually equivalent to enfranchisement for two reasons: first, the law only allows a tenant to extend their lease, so they will remain bound by the covenants of the previous lease (except for the payment of ground rent) and secondly, that extension is only an additional ninety years so in many cases they will have not entirely extinguished the diminishing aspect of their investment.

In most cases a ninety year extension will result in that flat having close to its maximum value, particularly as the new lease cannot contain an obligation to pay any ground rent, but it is not enfranchisement. The only way for a tenant to acquire a share of the freehold is to participate in a collective enfranchisement claim.

Unlike claims under the 1967 Act, it is necessary to propose a price in the claim notice. That has given rise to several referrals to the courts on what constitutes a reasonable proposal. The current view is that it should be based on evidence, but it does not have to be a figure that you would expect a landlord to agree. There are two reasons for a tenant to propose the lowest possible figure: first, there is an advantage in keeping the figure as low as possible to ensure a healthy margin for negotiation and, secondly, the statutory deposit with these claims is 10% of whatever price is proposed.

Unlike 1967 Act claims, there are strict timetables regarding an application to the valuation tribunal and these can create pressure on the negotiation. There have been literally hundreds of tribunal and law court decisions relating to lease extension claims which have transpired to be much more complicated than was first envisaged.