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Social housing - lease extensions

The current rules regarding lease extensions, the relevant criteria and eligibility are contained in the Leasehold Reform, Housing and Urban Development Act 1993. This is an act which confers rights to collective enfranchisement and lease extensions to tenants of flats.

The law is currently subject to review as a result of the Law Commission’s recent proposals to change the lease extension and enfranchisement process.

The advantages and of seeking lease extension are numerous. As a lease term decreases, there are associated negative implications. This can include difficulties in selling or re-mortgaging as well as the decreasing value of the property itself.

 

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Lease extension eligibility criteria - social housing

Lease extensions can be on made on either a voluntary or statutory route. The essential difference being in the eligibility criteria:

Statutory lease extensions

The leaseholder must be both:

  • 100% leaseholder this means that if the lease was granted by a Social Housing Provider that the tenant has staircased to outright ownership  and
  • The tenant has owned the property for at least two years
  • The lease was granted for a fixed term initially for at least 21 years at a low rent

Voluntary lease extensions

These are done with the agreement of the housing association and the tenant. Most housing associations will even before final staircasing seek to agree terms with a tenant who makes a voluntary application to extend their lease. This is something that they will typically agree term where the remaining lease term is below 80 years.

It should be noted therefore that a tenant under a shared ownership lease has no statutory right to a lease extension. The statuary right will only arise following final staircasing which is the procedure under which the tenant has acquired the property outright.

Costs and premiums

The landlord on a lease extension is entitled to a premium for extending the lease based upon the criteria in the 1993 Act. The cost of acquiring a lease extension is made up of the following;

  • Loss to the freeholder of the ground rent income for the remainder of the original term
  • Loss to the freeholder of the reversion i.e. the entitlement to the flat at the end of the existing lease and any loss to the freeholder (if any)
  • 50% of the ‘marriage’ value. The ‘marriage’ value is generally defined as the increase in the value of the property arising from the lease extension. There is no ‘marriage’ value payable on flats that have more than 80 years un-expired in the lease

The issue of valuation is one for a professional valuer with experience of the local market and the lease extension procedures. The Housing Association will often appoint a valuer and provide a time timescale thereafter to complete the lease extension.

In addition it should be born in mind that the tenant is responsible the Landlord’s legal and valuation fees.

Statutory lease extension procedure

The statutory lease extension procedure is commenced by the service of the tenant’s notice known as a “s41 Notice”. The notice contains certain required information namely:

  • Your full name and the address of the flat
  • Enough information about the flat to identify the property the application relates to
  • Details of the lease, including its start date and the number of years for which it was granted
  • The premium the tenant proposes for the new lease
  • The terms you are proposing for the new lease (if different from the present lease)
  • The name and address of your representative if you have appointed one
  • The date by which the landlord must give their counter-notice, which must be at least two months from the date of the tenant’s notice

The housing association must then serve their counter-notice by the date specified in the tenants notice. The counter notice must contain the following:

  • Admit your right to the new lease and accept your terms (or propose different terms)
  • Not admit your right and give the landlord’s reasons for this

Procedure and time limits in statutory lease extensions

  • The tenant serves a notice under section 42 of the act
  • The landlord can ask for extra information, but they must do so within 21 days of receiving the tenant’s notice
  • The tenant has 21 days to provide any information the landlord has asked for
  • The landlord must serve a counter-notice by the date stated in the tenant’s notice. This date must be at least two months from the date you serve the tenant’s notice
  • If the landlord does not serve the counter-notice by the date stated in the tenant’s notice, you must apply to the court for a vesting order within six months
  • After the landlord serves a counter-notice, you or the landlord can apply to the tribunal for an independent decision. You must do this no sooner than two months from, but within six months of, the date the counter-notice is served
  • The fee for applying to the tribunal is £100, and the hearing fee (once you receive notice of a hearing date) is £200
  • The tribunal’s decision becomes final after 28 days. If you do not agree with the tribunal’s decision, you can appeal to the upper tribunal before the decision becomes final, but only if you have the tribunal’s permission
  • After the tribunal’s decision becomes final, the tenant and the landlord have two months to enter into the new lease

The commercial property team at Stephensons are able to assist in the lease extension procedure whether you are a tenant of a social housing property or a social housing provider. We can assist in advising upon the procedures and statutory requirements to the drafting of the lease extension deed and its registration at HM Land Registry. If you would like to speak to a member of the team please call us on 0161 696 6174 or complete our online enquiry form and we will contact you directly to discuss your requirements. 

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4.7 score on Trustpilot Based on count 1040

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