My residential lease is coming to an end, how do I renew it?
As a tenant of a residential flat, you will have the right to a new lease under Part I of the Leasehold Reform, Housing and Urban Development Act 1993 (“LRHUDA 1993”), provided that you meet certain eligibility criteria. The new lease will be granted for a term of 90 years (plus the remaining term of your existing lease), at a peppercorn ground rent.
What is a short lease?
A short lease is one that is generally not considered to be good security for a mortgage lender due to the impact that the short term has on a Property’s value. Lender’s requirements do vary from each provider but, once a lease is getting close to having less than 80 years to run, you should consider your property’s mortgageability and the impact that the decreasing term of the Lease will have on your Property’s value.
In order for you to qualify for a new lease you must:
- hold the property under a long lease, which usually means a lease in excess of 21 years;
- have been the legal owner of the lease for a period of 2 years before commencing the claim for a new lease; and
- the property itself must be a flat within a qualifying building.
A premium will have to be paid by you in respect of the new lease. The lease premium will be determined by a valuer and the amount payable will depend on the property and your lease. The premium payable will be higher if the remaining lease term is less than 80 years.
Serving notice under Section 42 LRHUDA 1993
In order to start the statutory lease extension procedure, you will need to serve on your landlord a Section 42 notice.
Whilst there is no prescribed form of Section 42 notice, your notice will need to contain certain prescribed information. The notice will also need to specify a period of at least two months for a counter-notice to be served on you by your landlord.
There are no deemed service provisions in the LRHUDA 1993 and therefore you will want to ensure that the notice has actually been received by your landlord and any third party to your lease (e.g. a management company).
In addition to commencing the statutory procedure, service of the Section 42 notice also means that:
- your landlord is entitled to ask you for a non-refundable deposit of 10% of the total premium proposed by you in the Section 42 notice; and
- you will be liable for your landlord’s reasonable costs from the date the Section 42 notice is served.
Upon receipt of your Section 42 notice, your landlord will have until the date specified in your Section 42 notice to serve a counter-notice. The counter-notice must either:
- admit your claim to a new lease;
- deny your claim to a new lease; or
- not allow a new lease to be granted, on the grounds that your landlord himself intends to redevelop the land.
If your landlord admits your claim, then your landlord will also specify whether it agrees with the proposals contained within your Section 42 notice and it will make its own proposals.
What happens next?
The course of action following these events will very much depend upon the landlord’s counter-notice.
If the landlord admits the claim to a new lease, the terms can then be negotiated and agreed between the parties, usually alongside the form of lease.
Alternatively, if the landlord does not admit your claim, then it must apply to Court for a declaration that you did not have a right to a new lease on the date the initial notice was served.
What should you do?
The statutory procedure under Part I of the LRHUDA 1993 can be quite complicated. If you are thinking about renewing the lease on your flat, it is recommended that you seek legal advice from a lawyer who has experience of advising in connection with residential lease extensions under the LRHUDA 1993.