I have been acting for both landlords and tenants in all aspects of enfranchisement both on a voluntary and statutory basis for 5 ½ years.
I tend to find that there are two types of landlord client. The first are those landlords that insist on a statutory notice being served under section 42 of the Leasehold Reform, Housing & Urban Development Act 199 (“the 1993 Act”). This enables tenants to extend their lease by 90 years in addition to the unexpired term of their lease. In return for a premium, the ground rent becomes a peppercorn (i.e. nil).
The second type of landlord client takes a more pragmatic approach to the management of their portfolio. If at all possible, they want to retain their ground rental income stream and either approach their tenants directly to negotiate a lease extension on voluntary terms or make it clear to their tenants that a voluntary approach can be made at any time to them to extend their lease. This has a number of advantages. The first being that a lesser term than 90 years can be added to an existing term of lease. Although this may attract a lesser premium, the landlord is able to negotiate an increase in ground rent immediately upon granting the new lease and throughout the new term of the lease. In addition, it is commonplace for the tenant to meet the landlord’s reasonable legal and valuation fees which under the 1993 Act are restricted and usually result in a residual liability from the landlord’s perspective for fees that cannot be recovered from the tenant.
A voluntary lease extension does not follow a strict timeframe and so the lease extension proceeds on the landlord’s terms as opposed to the tenant’s terms. A statutory lease extension sets out a clear timetable for responding to, for example, the counter-notice, application to the Leasehold Valuation Tribunal and completion. Furthermore, a tenant has to have owned their flat for at least two years before being entitled to a statutory lease extension.
Whether a landlord decides to grant a voluntary or statutory lease extension to a tenant does of course depend on the landlord’s objectives. Some landlords see their portfolios as providing them with an income stream and accordingly a voluntary lease extension would enable them to increase this income by, for example, doubling the ground rent payable under a lease or linking the increase in the ground rent throughout the rest of the term to, for example, the retail price index. There are no set rules as to how the ground rent increases throughout the term and it is always advisable to take specialist valuation advice to calculate the likely premium payable.
Some landlords take the view that a tenant must have owned the property for at least two years prior to an approach for a lease extension and that in accordance with other properties within their portfolio and their own practice, a lease extension must proceed under the 1993 Act by way of a formal notice being served by the tenant and an additional 90 years being added to the unexpired term and therefore the ground rent becoming a peppercorn.
A landlord does not have to grant a voluntary lease extension to a tenant but there are obvious advantages, as stated above, for doing so. In some circumstances, a statutory lease extension may be more appropriate.
Irrespective, it is essential that a landlord engages the services of professionals experienced to deal in this complex area of law to ensure that at all times, their interests are protected.
Leasehold Enfranchisement Partner
Child & Child Solicitors
020 7201 1865