Negotiating Lease Renewal
If you have a lease on a residential property in the UK, you are in excellent company. As of 2023, there are in the region of 4 million leasehold flats in England and Wales under leasehold. If the amount of time remaining on your lease is coming towards 80 years, you will most likely be contemplating renewing your agreement. Understandably leaseholders often worry about renewing their lease. They may be worried that the landlord may refuse to renew the lease, they may charge unreasonable fees, or they may want to add new terms and conditions. Thankfully, with an understanding of the process, you will know how to negotiate a lease renewal increasing the chances of the outcome to go in your favour.
Can you renew the lease on a flat before it expires?
Yes, a residential tenant of a flat has a right to renew their lease in accordance with Chapter II of Part I of the Leasehold Reform, Housing and Urban Development Act 1993 (LRHUDA 1993). The law states that a tenant is entitled to enter into a completely new lease arrangement as long as they:
- Hold the property under a long lease of more than 21 years
- The property is a flat, and they
- Have been the registered proprietor of the current lease for at least two years before entering into a new lease arrangement.
How much does it cost to renew a lease?
The cost to renew a lease will be made up of the extension cost plus any additional fees.
The main cost of renewing your lease will depend on the remaining number of years, how many years you wish to add, the value of your property, and the ground rent. Ultimately, all of this is a matter for negotiation between you and your landlord.
For a flat with a value of £200,000 with a lease extension of 90 years, the extension cost is likely to be in the region of £4,500 if you have 90 years remaining. As a general rule, the fewer years you have remaining, the higher the cost. This is because if you allow the lease to fall below 80 years, you will need to pay 50% of ‘marriage value’ (i.e. the additional value of the property gained by renewing the lease) of the property in addition to the renewal fee.
It is also important to bear in mind the costs of valuing the property, legal fees, and stamp duty if the transaction fee exceeds £125,000.
Who pays the lease renewal fee?
Section 60 (Costs incurred in connection with new lease to be paid by tenant) of LRHUDA 1993 states that the tenant is liable for:
- Any investigation reasonably undertaken of the tenant’s right to a new lease;
- Any valuation of the tenant’s flat obtained for the purpose of fixing the premium or any other amount payable, and
- The grant of a new lease
How to ask the landlord to renew a lease
To ask your landlord to renew your lease, you will need to serve an initial notice using the statutory procedure under the LRHUDA 1993. Section 42 of the LRHUDA 1993 states that a letter of initial notice must include the following:
- The full name of the tenant
- The address of the flat
- Particulars of the flat to identify the extent of the claim.
- The date that the current lease was granted, the term it was granted for and the commencement date of the term.
- The amount you propose to pay to the landlord.
- The terms proposed for the extended lease
- The name and address of the person acting for the tenant in the claim for the new lease (i.e. Solicitor)
- The date by which the counter-notice must be served (at least two months after the initial notice is served)
- Confirmation of whether copies of the notice have been given to any other landlord(s)
Does a landlord have to renew a lease in the UK?
Under LRHUDA 1993, where a person has been a tenant of a freehold property for less than 2 years, the landlord can refuse the renewal of a lease. If the tenant has exceeded the 2-year period, the tenant is legally entitled to a lease extension of up to 90 years.
When should you get a lease renewal?
It is always advisable to extend your residential lease before it reaches 80 years remaining. This is due to the liability of the tenant to pay towards the marriage value of the property, as explained above. It is also important to bear in mind that the lease renewal process can take up to 12 months to complete, hence it is advisable to kick off the process as soon as possible to avoid the existing lease falling below 80 years.
Extending a residential lease can be a costly, lengthy, and complex process. Due to the sums of money involved and risks inherent in residential lease renewal, it is essential to engage the services of a property Solicitor who can manage the process and negotiate the lease renewal on your behalf.
Guillaumes LLP Solicitors is a full-service law firm based in Weybridge, Surrey. We have a highly experienced team of property Solicitors who can assist you with any legal matter, including renewing your residential lease or commercial property lease. To make an appointment, please visit our contact us page or call us on 01932 840 111.