fbpx

Why does the leaseholder have to pay a premium to the landlord?

The leaseholder has to pay the freeholder (and if applicable the headlessee(s)) something (known as the premium) to compensate them for the loss of their investment.

This is better explained as follows:

The freeholder purchased the property as an investment in order to make money. They initially received the purchase price of the flat, when they first sold the original lease on the flat. The headlessee would have the same reasons for purchasing a lease from the freeholder and then sub leasing to the leaseholder. The price the flat originally sold for would have reflected the length of the lease (a longer lease of say 999 years being more expensive than one of say 99 years). As such the freeholder and headlessee would have expected the flat back after the lease expired. If they are now going to be denied the flat back at the expected date they should rightly be compensated for this as if they had sold the flats with a longer lease in the first place they would have received more money.

It is this premium that we at Leasehold valuations calculate for you and negotiate with the landlord on your behalf.

Does he just pay the freeholder or also the headleaseholder?

As explained above, anybody who has an interest in the property above the leaseholder should be compensated for their loss due to the proposed extension of the lease. The level of compensation will depend on how long they own the property for before it passes onto the next level up.

For example, in some cases once a lease ends the headlessee will only hold the property for 3 days before their lease is also extinguished and the property then reverts to the next person up the chain. In this case the headlessee will not receive much of the share of the total premium as the value of the headlease is limited (ie only 3 days so cannot let it out or sell it on). However, in some cases the headlease may continue for many more years (100+ years) in which case they could sell another lease in it or rent it out and so the proportion of the premium they receive will be much higher.

Secure the future of your property with Leasehold Valuations.Leasehold Valuations in Slough UKSecure the future of your property with Leasehold Valuations UK

In the same way if a headlease is very long (say 999 years) then the freeholder will not get the property back for a very very long time and so he will receive a very small proportion of the premium and the parties between the leaseholder and the freeholder will get the lion’s share.

The manner in which the premium is “shared” between the relevant parties will be calculated by your valuer. This should be clearly explained and broken down in the valuation you receive.

At Leasehold Valuations we provide 3 valuations accompanied by a very detailed report which explains every aspect of the valuations to you along with some background to put it into perspective. Due to the complexity of the valuation we are always at hand to provide any further assistance we can to help you understand the valuation better along with the various options open to you. We hope this will help you make an educated decision on how you wish to proceed.

Please refer to our case studies to see how successful we have been when we have had to go to tribunal and helped our clients achieve fantastic results, in some cases saving them over £1 million but in most cases saving them many thousands.

Please contact us for free, no obligation, advice. Call: 01753 542984 or use our Contact form

Who are the various people involved in a lease?

There can be a number of parties involved in a lease.

At the top of the ladder is the freeholder who ultimately owns, not only the building, but also the site the building is sitting on. He/she will be the person/company who will legally eventually get the property and site back when all of the leases have expired. Of course in reality the leaseholders will probably keep extending their leases whenever possible and so the freeholder may never actually get the property back.

The next rung down in the ladder is the headlease. This is simply a lease like any other where the lessee leases the whole building/flat/house from the freeholder.

There can then be a number of underleases, again which are like any other lease but which are each successively slightly shorter than the lease above them (sometimes by as little as 3 days or as large as many years), and then the lowest rung on the ladder is the bottom lease. It is usually this bottom lease that is requesting the lease extension.

If there are so  many people involved in the chain of ownership who can give the right to extend?

Because the leaseholder is extending his lease by another 90 years the “competent” landlord is the one who holds a lease which expires after the extended lease will do so.

Secure the future of your property with Leasehold Valuations.Leasehold Valuations in Slough UKSecure the future of your property with Leasehold Valuations UK

So for example, if you have 40 years left on your lease you will end up with 130 years left on your lease after extension. If there is a head lease which has more than 130 years remaining on its term then only they can offer you an extended lease. The freeholder has no say.

If there were a number of leases in the chain of ownership then the first one that expires after 130 years will be the “competent” landlord.

Can the freeholder refuse to extend the lease?

In the majority of cases the freeholder cannot refuse a qualifying tenant to extend their lease.

However, there are exceptions to this rule and the most common is probably if the freeholder wishes to redevelop the property or use it for their own residence (although this is very rare). In either of these cases it is only possible for short leases.

For example a freeholder cannot claim to wish to use the property for his own accommodation if there are 50 years left on the lease. It would simply not be possible for him to prove that in 50 years’ time he definitely needs the property for his own personal needs. However, he could prove this if there was only 5 years remaining.

Redevelopment is slightly different because a freeholder could own an estate with 100’s of flats on it. In this case it may be possible for him to show an indication that in 20 years time the estate will be demolished and replaced with something else, although this would still be difficult to prove. Therefore, he could raise an objection to the lease extension when only 20 years are remaining.

This would also be the case for a very long headlease. It is not unusual for a head lease to have a 950 year term and then grant underleases for 125 years, thereby having over 800 years remaining on the lease when the underleases are due to expire. In this case the head lease could also show an indication of redevelopment of the estate in say 20 years time.

We, at Leasehold Valuations, have the knowledge, experience and much more to support you and will guide you through this process and the expertise to fight your case as vigorously as it deserves from initial valuation to the First-tier Tribunal (Property Chamber)– (if required).

Please refer to our case studies to see how successful we have been when we have had to go to tribunal and helped our clients achieve fantastic results, in some cases saving them over £1 million but in most cases saving them many thousands.

Please contact us for free, no obligation, advice. Call: 01753 542984 or use our Contact form.

Process Involved In Extending My Lease in UK

This third blog in a series of blogs attempting to explain in layman’s terms the process of extending your lease, whether for a flat or house. Please see our previous blogs in this series and also all other blogs which are intended to help you understand this complex piece of legislation.

How much does it cost to extend my lease?

There are 2 main fees payable in the lease extension process. One is to the surveyor and the other is to the solicitor. However, you as the leaseholder are legally obliged to pay also for your landlord’s “reasonable costs”. So not only do you have to pay your own surveyor’s and solicitor’s costs you also have to pay your landlord’s surveyors and solicitor’s costs. These costs must be “reasonable”.

Secure the future of your property with Leasehold Valuations.Leasehold Valuations in Slough UKSecure the future of your property with Leasehold Valuations UK

Although fees vary across regions and firms a rough estimate for surveyor’s costs would be £700 – £950. We believe “reasonable” solicitor’s costs would be in the region £700 – £1,200.

What is the process involved in extending my lease?

The process for lease extension basically is as follows: 

  1.           You need to get a valuation so that you know what figure to enter in your initial notice to your landlord. The valuation is usually undertaken by a surveyor. Where an intermediate or superior lease is involved there may be an additional charge as this additional interest makes the valuation a bit more complicated.
  2.           Once you have received your valuation, you need to instruct a solicitor to serve an initial notice on your landlord requesting the lease extension.
  3.           Once this notice is served the landlord has 2 months within which to serve their counter notice stating at what price they would be willing to extend your lease.
  4.           Once this notice has been served the surveyor then begins negotiations with the landlord’s surveyor in order to agree on a premium which will be payable to extend your lease. We have a time limit of 6 months in which to agree.
  5.           Once the matter is agreed your solicitors will complete the extension.

What happens if the two surveyors cannot agree to a premium?

If agreement cannot be reached within 6 months, then either party has the right to apply to the First-tier Tribunal (Property Chamber) (formerly known as the Leasehold Valuation Tribunal) to have their case heard. A tribunal usually consists of 2-3 professionals with at least 1 surveyor and 1 legal professional both with relevant knowledge of the matters to be heard.

If the matter is referred to the First-tier Tribunal (Property Chamber) then additional fees will be payable.  

The First-tier Tribunal (Property Chamber) is the court equivalent to property related matters.

The First-tier Tribunal (Property Chamber) will firstly issue directions, with strict timescales, to both parties on what they want each of their professional advisers (solicitors and surveyors) to do. If these timescales are not adhered to the Tribunal can take that into account when asked to award costs.

Each party therefore needs proper professional advice to guide them through this maze of regulation and, firstly, to try and avoid a full hearing (thereby saving costs for their clients) but also to fight their client’s case as vigorously as possible if a full hearing becomes necessary.

Some professionals will claim to know how to deal with leasehold matters when in reality they have very little experience or knowledge.

We, at Leasehold Valuations, have the knowledge, experience and much more to support you and will guide you through this process and the expertise to fight your case as vigorously as it deserves from initial valuation to the First-tier Tribunal (Property Chamber)– (if required).

Please refer to our case studies to see how successful we have been when we have had to go to tribunal and helped our clients achieve fantastic results, in some cases saving them over £1 million but in most cases saving them many thousands.

Please contact us for free, no obligation, advice. Call: 01753 542984 or use our Contact form.

How to extend your lease in the UK?

This second blog in a series of blogs attempting to explain in layman’s terms the process of extending your lease, whether for a flat or house. Please see our previous blogs in this series and also all other blogs which are intended to help you understand this complex piece of legislation.

Which legislation covers the extension of a residential lease or purchasing the freehold of a block of flats?

There have been many statutes that govern issues surrounding flats and houses over the years. The current ones that are relevant are “Leasehold Reform, Housing and Urban Development Act 1993” for flats and “the Commonhold & Leasehold Reform Act 2002” for houses.

Who can apply for a lease extension?

In order to exercise your rights under either of the above statutes you now only need to have owned (not necessarily lived in) the property for at least 2 years.

How long can I extend my lease for?

Although you are free to agree to any extended term between freeholder and leaseholder the default positions, in the absence of agreement, are as follows.

Secure the future of your property with Leasehold Valuations.Leasehold Valuations in Slough UKSecure the future of your property with Leasehold Valuations UK

For a flat you can extend your lease for an additional 90 years (e.g if you currently have 67 years left on your lease your extended lease will end up with 157 years on it).

For a house you can extend your lease by 50 years (so using the example above your extended lease will end up with 117 years on it).

What are the qualifying criteria?

As mentioned in our first blog certain criteria have to be met in order for you to qualify to have your lease extended.

For flats:

          You have to have owned the flat for at least 2 years;

          Your ownership of the flat must be held  under a qualifying lease;

          A qualifying lease is one that is for a fixed term of at least 21 years;

          The property which you wish to extend must be a “flat” as described under the definition;

For houses:

          You must be the tenant of the whole house unless you are already the freeholder of those parts of the house of which you are not the tenant.

          A qualifying lease is one that is for a fixed term of at least 21 years;

          You have to have owned the house for at least 2 years.

          Your rent must be classed as a “low rent”. The definition of this is quite complex and so please contact us for further guidance.

What rent do I end up paying after the lease extensions?

Regardless of what ground rent you were paying before the lease extension for a flat your rent will decrease to effectively NIL.

I say effectively because under the legislation the ground rent reduces to a peppercorn which is equivalent to £1 per year but landlords very rarely charge this as it become uneconomical to do so.

For a house extension your rent will change to a “Modern rent”. A “modern rent” is the market rent as on the date of valuation for the site (not including the house or any other buildings on it).

The method of valuing this “modern rent” is extremely complicated and so please contact us for further advice if required

Free Consultation

Call 01753 542984 for a FREE 10 minute consultation on your lease
extension or freehold purchase.