Lease extensions
I am selling my flat but the lease is short and the buyer wants to be sure they can extend the lease. What do I do ?
You need to manage your buyer’s expectations. Do they want an extended lease prior to exchanging contracts or are they content with simply inheriting the right to extend the lease? To some extent, this will be dependant on how the buyer is financing the purchase because different lenders will have different requirements.
If your buyer wants the lease extended, you have two options as follows:-
1. Try to negotiate a lease extension with your freeholder or their managing agent outside of the statutory procedures laid down by the Leasehold Reform Act. In this case, you are somewhat in the hands of the freeholder. They do not have to offer you what you are entitled to under statute. You might not achieve a 90 year extension and you may not get a nil ground rent and you may have to pay a higher premium. On the other hand, particularly if you are not yet a qualifying tenant yourself, you get the certainty of the extension and the certainty of an exchange with your buyer and your legal costs should be lower than going through the statutory proceess.
2. Serve notice on the landlord to extend the lease under the relevant statutory procedures. You must be a qualifying tenant. In most cases, this will mean simply having owned the flat for two years. You will need to have taken valuation advise as to what figure to offer the landlord. Once the notice is served the landlord has two months to respond. Invariably, they will serve a counter notice with their own counter offer. There is then a period of negotiation during which the parties may apply to the LVT. The process is lengthy and can take many months. Whilst the premium is likely to be less than if negotiated direct with the freeholder, legal costs may inflate this. Some buyers, and some lenders, may be content for you to serve the notice once contracts have been exchanged and for you to assign the benefit of that notice to them on completion of their registration as owner so that they effectively step into your shows and continue the process with the Landlord. That way they need not wait two years in order to be able to serve notice. Beware that the solicitor acting for the seller must ensure there are adequate clauses in the sale contrac to cate for the proper service of the notice, who is liable if something is wrong with the notice and how it is assigned to the buyer. This requires detailed drafting.
For more information contact James Swede of Darlingtons Solicitors, who are specialists in lease extensions.