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MAYS BROWN Q&A Extending your lease
Published Date
17 June 2009
Author / Submitted by
Mays Brown Solicitors
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I own a flat that has 81 years remaining on the lease. Is it possible to extend my lease and do I have to pay my freeholder for extending the lease?
As long as your lease is a residential long lease (granted for more than 21 years) and you have owned the lease for at least two years (there are a few other conditions, which may or may not apply in your case), you have a statutory right to extend your lease. The right is to be granted a new lease for a term equal to the unexpired term of the existing lease plus 90 years. The new lease is at a ‘peppercorn’ rent (literally a peppercorn if ever demanded) and is otherwise generally on the same terms as the existing lease. A premium is also payable to the freeholder for the grant of the extended lease.
A surveyor will be able to advise you on the value of premium payable, but in short, this premium is made up of the following elements:
1. The amount by which the open market value of the landlord’s interest in the flat is reduced by reason of the grant of the lease extension. The longer the unexpired residue of the existing lease, the less this amount will be.
2. The marriage value. Where a tenant is granted a lease extension, the value of the landlord’s interest will usually decrease (unless the unexpired term of the existing lease is very long), and the value of the tenant’s interest will increase. Because the tenant under the existing lease has a special interest in acquiring a lease extension, the amount by which the tenant’s interest increases will often be more than the amount by which the landlord’s interest decreases. Where this happens, the total value of the landlord’s and the tenant’s interests after the lease extension will be more than the total value of them before the lease extension. This increase in the total value of the two interests is known as marriage value. The longer the unexpired term of the existing lease, the lower the marriage value will be.
If the unexpired term of the existing lease is 80 years or less at the date of the tenant’s notice requesting a lease extension, then half of the marriage value is payable. However, if the unexpired term is more than 80 years, then no marriage value is payable. You are therefore advised to act quickly to ensure that your solicitor serves your notice to extend your lease before the unexpired term is 80 years or less to avoid the additional costs of having to pay 50% of the marriage value.
As long as your lease is a residential long lease (granted for more than 21 years) and you have owned the lease for at least two years (there are a few other conditions, which may or may not apply in your case), you have a statutory right to extend your lease. The right is to be granted a new lease for a term equal to the unexpired term of the existing lease plus 90 years. The new lease is at a ‘peppercorn’ rent (literally a peppercorn if ever demanded) and is otherwise generally on the same terms as the existing lease. A premium is also payable to the freeholder for the grant of the extended lease.
A surveyor will be able to advise you on the value of premium payable, but in short, this premium is made up of the following elements:
1. The amount by which the open market value of the landlord’s interest in the flat is reduced by reason of the grant of the lease extension. The longer the unexpired residue of the existing lease, the less this amount will be.
2. The marriage value. Where a tenant is granted a lease extension, the value of the landlord’s interest will usually decrease (unless the unexpired term of the existing lease is very long), and the value of the tenant’s interest will increase. Because the tenant under the existing lease has a special interest in acquiring a lease extension, the amount by which the tenant’s interest increases will often be more than the amount by which the landlord’s interest decreases. Where this happens, the total value of the landlord’s and the tenant’s interests after the lease extension will be more than the total value of them before the lease extension. This increase in the total value of the two interests is known as marriage value. The longer the unexpired term of the existing lease, the lower the marriage value will be.
If the unexpired term of the existing lease is 80 years or less at the date of the tenant’s notice requesting a lease extension, then half of the marriage value is payable. However, if the unexpired term is more than 80 years, then no marriage value is payable. You are therefore advised to act quickly to ensure that your solicitor serves your notice to extend your lease before the unexpired term is 80 years or less to avoid the additional costs of having to pay 50% of the marriage value.
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