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What Happens When the Lease Expires on a Leasehold Property?

What happens when the leasehold expires?

In England, mostly all residential flats are leasehold as well houses are freehold properties. When the leasehold expires, the property reverts to a freehold property, where it is under the ownership of the freeholder in addition to you no longer having the right to stay there. Further, you can buy a new leasehold property, or generally, if you still want to stay there then you should not let it expire and should extend the lease earlier before the time clocks.

 

What happens if the lease is not renewed?

There are several possibilities in which your lease is certainly not renewed. 

  1. When a landlord decides to end a lease, they may send a lease non-renewal notice to their tenants. The non-renewal notice must be provided to the tenants on hand(in written). The landlord must not give any reason for ending the lease. Hence, the landlord will let you know if they want to end the lease further.
  2. Another possibility is your landlord wants to change your lease agreement plan with some new labels for which he/she would inform you.
  3. As a leaseholder, you should decide before a month about how you need to proceed when your current lease ends. You can discuss with your landlord how they will proceed further when the lease expires.

 

How to extend a lease on a leasehold property?

If you own a leasehold property or flat, you have the right to extend the lease with specific criteria. There are two simple ways of extending the lease: Formal and Informal. In the formal way leaseholder and freeholder both need to follow a firm procedure stated in the law. By following this way, the leaseholder will get more benefits and security. Another alternative method of extending the lease on a leasehold property is to approach the freeholder and decide whether to conduct a lease extension negotiation. If the freeholder accepts the approach, both parties will have to negotiate. 

A lease extension is a confusing task. We suggest you consult a Leasehold Valuation expert as professional valuation advice is crucial for extending a lease. Are you worried about extending the lease on your flat? A complete step-by-step Lease extension Guide will be right for you.

 

Can the landlord kick you out after your lease is up?

A landlord cannot end up your agreement directly after the lease is expired. The landlord can provide a 30 days notice period to end up with the lease agreement and follow specific procedures before they want to evict a tenant. The tenant must be provided with a notice period until which they can find another way out.

 

Can the tenant refuse to renew the lease?

The tenant has the right to not renew the lease with or without any legal reason. Even if the landlord wants to renew your lease agreement, he/she doesn’t have the right to renew it.  

 

Do you have to move out the day your lease ends?

Once the lease expires, you should move out and leave the house. If your lease ends on a specific day, you should move out before the day ends. 

 

Do you need to give notice if your lease is expiring?

If the tenant does not want to renew the lease at the end of the lease agreement, they have the right to move out. In general, tenants must provide a 30 days notice period to the landlord before ending the lease.

 

Why leases are for 99 years?

Under notable common law, leases are for 99 years. The longest possible term of a lease of residential or commercial property.

 

Anxious about the lease extension cost?

It is very crucial to learn about the lease extension process before the calculation of lease cost. The lease cost is also a required term during lease renewal or lease extension. Many homeowners and our grateful clients have calculated their lease costs with our Leasehold valuation calculator, you can also get professional advice from our experts.

Whether you need to extend your residential lease, need to buy your freehold of a leasehold house, want to calculate lease extension cost, Leasehold valuation experts can provide you with all the solutions. Get lease extension advice, calculate lease extension cost, lease extension negotiation with our professional team, who can help you from valuation of leasehold property to a complete survey report.

Read more:

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Making Alterations To A Leasehold Property

Shared ownership Lease Extension

How to avoid the most common issues in Lease Extension in UK

The process of adding more years onto your lease is called Lease Extension. Due to the complexity of the lease extension valuation and the overall process, it comes with its own issues. Here we will discuss how to avoid the most common issues in Lease Extension in UK. Most flat owners and a fair number of house owners in the UK are long leaseholders. This means they do not own the freehold of their homes and are in a tenant/landlord relationship with the owner. Leases on flats or houses last normally up to 99 years or 125 years from when the property is built. After this, the property goes back to the freeholder. Lease extension in the UK can be carried out if you are an eligible leaseholder. The lease agreement holds the details about the rights on the property of the leaseholder and the freeholder. This arrangement comes with its fair share of problems. For example, if the duration of your lease falls below 80 years it can significantly decrease the value of your property and make it harder for you to sell it. Fewer mortgage lenders will be willing to lend against it.

Most common issues in lease extension

Lease extension in UK can be a daunting task and comes at a cost. You may use the lease extension calculator to find out the costs but the process of lease extension valuation calls for complex calculations considering the length of the lease, ground rent, value of the property when it is extended and various other factors. After the freeholder’s and the leaseholder’s surveyors have done their valuation it comes down to negotiations between the freeholder and the leaseholder. The Lease Extension Valuation calculator in UK can also get you an estimate of the lease extension costs. All this turns into a rather tedious process and takes an enormous amount of time. It is best to hire a solicitor to carry out the processes due to the legal documentation involved.

Issues with Informal Lease Extension

Keep in mind that current laws require the leaseholder to pay everything including the expenses of the solicitor and surveyors of both the leaseholder and the freeholder’s and obviously the premium. This is why it is sometimes tempting to skip the statutory process and strike an informal negotiation with the freeholder. This process can be faster and save expenses related to the freeholder’s surveyor. 

But it is important to note that taking the statutory route can make your ground rent negligible. On the other hand, making an informal lease extension runs the risk of increasing it. Making an informal lease extension also deprives you of the protection and security provided by the lease extension legislation. The freeholder may set the terms of the lease to his own liking, which may include increasing the ground rent. 

There is also the possibility that the freeholder may just extend the lease back up to 90 years or 99 years instead of giving you an additional 90 years. This means either you or a new owner may have to go through the entire lease extension process again.

When to extend a lease

If you are trying to extend a lease that has fallen below 80 years, it may burn a hole in your pocket because lease extensions get much more expensive after that period. So every year that you wait for your lease extension, the more expensive it gets. When it comes to selling your house, any new buyer will find it hard to be accepted for a mortgage when the duration of your lease has fallen below this level. So the number of years left on your lease is critical for selling or remortgaging your property. 

As per The 1993 Leasehold Reform Act, if you are a flat owner, you are entitled to a lease extension on your flat after you have owned the property for at least two years. You possess the right to extend the lease by 90 years and reduce the ground rent to zero. But if you own a house you only gain an additional 50 years upon extending the lease which makes buying the freehold a better option.

Issues with service charges

Services charges are the amount that the landlord charges from the leaseholders in return for providing maintenance and repairs to the property. The terms and conditions for these are laid out in the lease agreement. Service charges may include the cost of services like general maintenance, cleaning of shared areas, repairs, building insurance etc. This is one of the main areas where disputes are expected to occur between the leaseholder and the freeholder.

The service charges could either be fixed or set on a variable basis. Fixed charges are where the leaseholder is required to pay a fixed amount irrespective of the actual costs to the freeholder. The fixed charge is now usually a part of older leases because as costs increased due to inflation, the freeholders now prefer to charge based on the actual cost of the services to make sure they recover their costs every year. These charges may change from time to time and are called variable service charges.

Service charges may fluctuate but the freeholder is allowed to recover only a reasonable amount from the leaseholder and if at any point you find the freeholder being unreasonable with the amount he is charging you have the right to apply to the tribunal to challenge these service charges.

It is a good idea to find out what the current and future service charges are going to be for a leasehold flat that you are about to buy.

Preparing the Tenant’s notice

The process for a lease extension starts with the valuation and then to service of the tenant’s notice. Note that from the date of receipt of the notice by the landlord you are liable for costs incurred by the landlord concerning your lease extension. So make sure that there are no errors in your notice and that it is up to the mark and accurate. If the tenant’s notice is found incomplete, it becomes invalid and the landlord has the right to reject it. You may apply to the County Court to get this corrected but this will cost you additional money so it is best to avoid that from happening. 

It is recommended to register your notice with the Land Registry because, in the event where the landlord sells the freehold to another, the lease extension procedure can continue as though the new owner had received the original notice. 

It is best to instruct a solicitor to prepare the notice and serve it so you can avoid any mistakes which may lead to legal issues arising from it.

If you are looking for help with Lease Extension is Slough we are happy to help. Our team of chartered surveyors can help you successfully negotiate your lease extensions or enfranchisement. Contact us for a consultation today.

Valuation for buying the freehold of a leasehold house in the UK

At some point in time, you must have considered buying the freehold of your property. The house was originally sold to you on a leasehold basis. If you buy your freehold you get more control of your property. You gain more freedom in deciding what you want to do with the property and, if alterations are in your mind, how much you want to spend on them. Sometimes when you’re a leaseholder of a property, the ground rent and service charges that you pay to your freeholder can get inflated to exorbitant proportions. You could end up paying unreasonably high ground rent to the freeholder.

It is not only flats that have historically been sold as leasehold, some houses (new and old) have also been sold on a leasehold basis. Multiple limitations and unfair contract clauses with the freeholder can even impair you from being able to sell your property easily.

Under such circumstances, it is perfectly justified to buy the freehold of your property. You would certainly enjoy the freedom.

Check your eligibility

The Leasehold Reform Act 1967 (the 1967 act) gives leaseholders the right to buy the freehold of the property. The process of valuation of buying the freehold of a leasehold house in the UK is also known as ‘Enfranchisement’ or ‘Freehold Enfranchisement’ where the leaseholders themselves become the freeholders of the property. However, there are a few requirements you need to meet for being eligible to buy the freehold of your leasehold house.

Valuation for buying the freehold of a leasehold house

Once you have checked your eligibility you need to calculate the price for buying the freehold of the property. Now, this price depends on several different factors and since the rules for calculating the price have changed through various amendments made to the 1967 act, it is quite complicated to calculate the price by yourself. It is recommended to get professional help from a surveyor to get a fair estimate of what you should be paying for the freehold.

Methods of Valuation

There are two different methods of valuing the house under the 1967 act known as ‘Original Valuation’ and ‘Special Valuation’ you can also use a freehold calculator for houses. Under relevant sections of the 1967 act, these are mentioned as

Section 9 (1) – the house will be valued based on the original value of the site known as the Original Valuation basis

Section 9 (1A), (1C) – the house will be valued on the Special Valuation Basis which includes a part of the marriage value.

Which of the above two valuation methods is applicable on your property depends on the qualification criteria and you or the landlord have no say in it.

The house will be valued on the Original Valuation basis if under Section 9 (1) of the 1967 act if the house meets the value limits and the lease qualifies the original low-rent test. Otherwise, in all other cases, the property will be valued according to the Special Valuation Basis, including cases where the lease has been extended under Section 14 of the 1967 act.

To get a reasonable idea of the prices for buying the freehold of a leasehold you can also visit our freehold of a leasehold house calculator.

After the Valuation

When the valuation is carried out or after using a freehold calculator for a house, irrespective of the method used, the price for the freehold is valued as being sold in an open market to eliminate any biasing towards either party. The motive of the 1967 act is to maintain fair trade between the leaseholder and the freeholder and provide adequate compensation to the freeholder for the loss of their property. The act does not aim to help the freeholder drive a bargain in his favor. The property is valued according to the open market price to ensure the freehold is transferred at a fair price to the leaseholder. Using the Special Valuation method does drive up the cost of the freehold when compared to the Original Valuation basis, so it is better to work out the details beforehand.

After the valuation, you may open up a dialogue with the current freeholder for negotiating the prices. If both parties settle on a price, the documentation may be completed. However, in cases where a settlement cannot be reached, the First-Tier Tribunal can be involved. The Tribunal acts as an unbiased third party and its role is not to rule in either the leaseholder or the freeholder’s favor. It makes an independent decision so the prices decided by the tribunal may not reflect what you or the freeholder may have decided.

You as a leaseholder have to start the process by issuing a formal notice of claim to the freeholder. It is important to seek professional advice from a valuation surveyor with good knowledge of the market so you know what costs you are going to incur before you initiate the process.

If you are looking for a lease extension in Slough, UK contact us for any kind of assistance. Our team of chartered surveyors can help you successfully negotiate your lease extensions or enfranchisement. Give us a call for a consultation today.

What is Collective Enfranchisement | An Advanced Guide

What is Collective Enfranchisement?

Leaseholders will own the freehold of the entire building which is why the term ‘collective’ is used. However, this is a complicated and lengthy process so it is advisable to instruct a Collective Enfranchisement Solicitor to do it for you.

It is also advised to get Collective Enfranchisement Valuation done from a surveyor to get an idea of the best and the worst amount that can be offered in the Initial Notice.

The best way to purchase a freehold by a group of participants is via a company set up for this purpose and all participating leaseholders will be members of this.

Why should you own a freehold?

Owning a freehold of your building individually or among a group of residents would mean you have more control over your own building and you will partly legally own the ground and the structure of the flat which can allow you to waive off the ground rent. Also, any lease extensions of the participating flats would be agreed upon between the participants at no extra cost.

If you want to modify your flat in any way or undertake an extension on your flat, a group of residents who own the freehold can look at this more approvingly than an external freeholder.

Additionally, you and your joint owners will gain the right to employ any property management company to take care of the maintenance and cleaning of communal areas, which would not have been possible in the case of an external freeholder.

Who and what qualifies for a Collective Enfranchisement?

Before the process is carried out, the building and the participating tenants must qualify for the Collective Enfranchisement.

Qualifying criteria for the building:

  • The building must contain at least two flats
  • It must be a self-contained building or be a part of a building with independent services to that part
    At least two-thirds of the flats must be owned by qualifying tenants (whose leases have more than 21 years remaining)
  • Not more than 25% of the internal floor area is being used for non-residential purposes, for example, shops or offices. Garages and parking spaces will be classified as residential areas

Qualifying criteria for leaseholder:

  • The leaseholder must have a lease which is for a period longer than 21 years
  • The leaseholder must not own more than two flats in the building

The Procedure for Collective Enfranchisement

Once you’ve checked that the building and the tenants are meeting the qualifying criteria the next step would be to form a working group and enter into a formal participation agreement which will set out the terms of the purchase and sharing of the Collective Enfranchisement Costs or premium between participating members.

Due to the complex legal procedure, it is recommended to join together and instruct a Collective Enfranchisement solicitor and surveyor to act for you. The surveyor will be able to perform a better valuation of the property and advise the amount to be offered in the Initial Notice.

The solicitor will usually advise you to set up a company for the purpose and all the participating leaseholders will then be members of this company. This will also be the Nominee purchaser who will be mentioned in the Initial Notice.

Once the surveyor has calculated the Collective Enfranchisement Cost the Initial Notice may be served, stating the name of the freeholders, the Nominee purchaser, and the premium you’re willing to pay. The freeholder then has a two-month window to come back and serve a counter-notice saying if they accept the request or not and put forward their terms and conditions if any.

If the freeholder disputes the premium the parties have a further six months to negotiate. If an agreement cannot be reached within this period then the matter can be taken to the Leasehold Valuation Tribunal after that.

What is Collective Enfranchisement? An advanced guide

Collective Enfranchisement Costs

It is highly recommended to get a valuation of the property done by a Collective Enfranchisement Surveyor before proceeding with the legal formalities so the leaseholders can have an idea of the premium.

Though an exact value of the settlement figure is not really possible to predict, the surveyor should still be able to provide a ‘best and worst’ figure from the leaseholders’ perspective.

Also, note that the leaseholders will be responsible for their own costs as well as the freeholder’s surveyors and legal costs. If the matter gets referred to the Tribunal, each party will be responsible for their own expenses incurred during the Tribunal proceeding

How To Negotiate Lease Extension | Trick Revealed

So, you’ve finally found a place you’re comfortable with. The neighborhood is good, no leaking pipes and no creepy noise are coming from the walls at night, and just when you thought it couldn’t get any better than this, you realize that your next rent review is only around the corner, potentially threatening your idea of settling down for a bit. Now that will make you think about how to negotiate a Lease Extension so you can still retain your property while spending less on the cost of a  Lease Extension.

But don’t worry. Not everything has to be sad and gloomy. At LeaseholdValuations.com we hold your hand through the complicated lease extension maze and keep you up to date along the way, making the whole process much less stressful and run smoothly.

If you don’t know how much does it cost to extend a lease, there are various ways you can find that out, which we will discuss further.

When do you negotiate?

There are two ways you can approach this.

  • You could take the traditional approach where the leaseholder serves the Section 42 Tenant Notice, which is followed by the Section 45 Counter Notice from the freeholder where they usually decline the amount suggested and put forward their premium. Negotiations happening at the Section 45 Notice stage involve solicitors, surveyors, and additional expenses that they bring with them.
  • You could choose the alternate method where negotiations happen before the leaseholder serves the Section 42 Notice. In this case you’re in direct contact with the freeholder or the management company, you can directly write to them stating your intentions of extending the lease and see if they’re open for negotiation. This saves costs that you would normally pay solicitors or surveyors at the Section 42 stage.

At this point, they would either agree to your terms or present you with their own offer, which you can compare with our online valuation calculator. If they end up ignoring you, you still have the option of taking the traditional approach and serving them the Section 42 Notice.

You may serve your own Section 42 Notice, but it is a good idea to instruct a solicitor to do it for you because serving a Section 42 Notice is critical, and any errors can allow the landlord to apply to the court to have it dismissed. 

RICS Valuation

Get an RICS Lease Extension Valuation before serving the Section 42 Notice because specialist RICS surveyors can perform a precise valuation of the property and give you a good estimate of how much you should be willing to offer the freeholder to extend the lease while staying in the confines of the Leasehold Reform Act. 

Using an online Lease Extension Calculator

There are ways you can calculate your premium online using an online Lease Extension Calculator, which can give you a rough idea of how much the premium is going to set you back. But remember, it only gives you a rough idea because the calculator will give you an amount depending on what data you have input. The freeholder has the right to raise an argument that you are not qualified to value the property and to give any offers based on your valuation.

In circumstances where you do proceed with serving a Section 42 Notice based on a value obtained from an online calculator, the freeholder may ask you to still get the leasehold valuation performed from a qualified RICS Surveyor. This may again add cost to your budget, so proceed with caution.

Open up a dialogue as soon as you can

It is a good idea to establish direct contact with the freeholder and work out a deal that works for both of you. Start discussing your terms early on because the earlier you begin a conversation, the more time you have to convince the landlord and also find out if the landlord is amenable to a deal or not. Get in touch with them directly and try something like, “I have received an online valuation which shows that the premium should be less than you are offering. Can we discuss this and find something that we are  both happy with?” This can open up your opportunity to discuss your terms with the landlord.

Establishing contact with the freeholder before serving the Section 42 Notice will open up a discussion and will give the freeholder an idea of the kind of premium that you have in mind. Depending on their response, you can judge whether they are willing to bend or not. This can help you further down the line when finalising the deal.

This might not help if the freeholder you’re dealing with is a large company because they usually only respond to formal notices to extend the lease.

Serving a Section 42 Notice

Based on how your pre-section 42 notice negotiation goes with your freeholder, you may now ask your solicitor to serve a formal Section 42 Notice for a lease extension. However, keep the following points in mind before including an amount in the offer.

a) Don’t offer too low: If you offer an impractically low amount, the freeholder may outright reject your offer and claim that your offer is invalid due to it not being “bonafide” or “realistic” So, choose an amount that’s reasonable, and that gives some room for a discussion

b) Don’t offer too high: Obviously, the freeholder is looking for the highest amount possible, and by offering an amount that is too high, you’re leaving no room for negotiation. Consider this a missed opportunity to settle on a reasonable premium.

The best way to go about this is by putting forward an offer that is somewhere in the middle of the lowest and the highest premium received from the surveyor’s valuation.

Receiving a Section 45 Counter Notice

If the freeholder accepts your offer, it’s all sorted. But if they don’t accept the offer, they will propose a revised counter-offer, which will be contained in the  Section 45 Counter-Notice. Now depending on how much different the Counter-offer is and how much you’re willing to deviate from your original offer, there are two possibilities.

If the counter-offer proposed by the freeholder is not significantly different from your original offer and is not setting you back by a huge amount, you may proceed with finalizing the deal. Also, if the difference in the amount is not worth spending extra money on your surveyor for negotiating with the freeholder, you may accept the offer and close the discussion.

If you feel the difference amount is too high, you can get your surveyor to negotiate your lease extension. The negotiation will take place between your surveyor and the freeholder’s surveyor to reach a common ground while comparing both their valuations. Remember that the hourly charges for negotiations are remarkably high, and you may end up paying more money for negotiating than the actual difference in premium. So, compare them wisely before going ahead.

So, consider your budget, what exactly you can afford, and how far you’re willing to go to turn the deal in your favor.

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