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 1993 (“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. Thirdly, a tenant
does not need to wait the usual two year period to
be entitled to extend their lease.
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 at all times,
their interests are protected.
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