Lease and Lease Extensions
When you purchase your property, you will be required to sign a lease. This is a legally binding contract that states your rights and responsibilities as the leaseholder, and the rights and responsibilities of your landlord.
What is a lease?
A lease is a contract giving you the right to occupy and use your property for a set period of time, referred to as the ‘term’ of the lease. The lease is a legally binding contract between yourself as a leaseholder, and the landlord. Everything you and your landlord do in relation to your property and the wider development is governed by the conditions of your lease.
In most cases, your lease will be a standard Homes and Communities Agency (formerly Housing Corporation) model Shared Ownership lease. These were first issued in the late seventies. Many of these leases would have been issued for a term of 99 years and the remaining term on your lease may have diminished significantly. This is known as being “short”.
Many leaseholders will already be aware that when a lease becomes “short” its value reduces. There is of course no exact time when a lease is classed as “short”, but generally it is thought to be that way when a lease falls below 80 years. A “short” lease may create difficulties for a leaseholder if they wish to sell or re - mortgage.
Do I need to meet certain qualification criteria to extend my lease?
In order for a leaseholder to be able to claim the right to a leasehold extension, they must satisfy certain conditions:
1. The existing lease must be for a term exceeding 21 years. There is no requirement that any particular period remains unexpired. A tenancy with a covenant providing for perpetual renewal is deemed a qualifying lease for these purposes.
2. Leaseholders need to have owned the property for two years and any leaseholder who has owned it for less doesn’t have an automatic right to extend.
PLEASE NOTE –we are currently waiving the two year ownership requirement on our informal lease extensions as a way to try and assist leaseholders by enabling them the opportunity to extend their leases as soon as possible.
Important to know… A lease extension is a statutory right for 100%-owned apartments, provided you meet the qualifying criteria.
Please be aware that it is not a statutory right for a shared owner to have a lease extension granted (until their share is 100%), however Peabody recognise the benefits of lease extensions for our leaseholders and offer an informal process where appropriate.
Please contact lease.extensionsCHG@peabody.org.uk
My lease is short - what do I do?
A leaseholder who satisfies certain condition has a “right” to be granted a new lease for an additional term of 90 years at a peppercorn rent.
A Shared Ownership leaseholder can also have their lease extended, however they will continue to pay the rent on the unsold share in the same way as this is a fundamental clause of the lease. There are two routes by which you can extend the lease and you must speak with your legal advisor for the best option for you before proceeding:
Informal (For Outright and Shared Ownership Leaseholders)
This is offered by Peabody; it may be quicker and less costly in terms of legal fees. To proceed under this route you need to complete the informal procedure form and send this back to the Resident Sales Team at Peabody so that we can instruct the valuer on your behalf.
Formal (For Outright Leaseholders only)
This is prescribed by law; to proceed by this route you will need to serve a statutory notice under section 42 of the Leasehold Reform Act 1993. This should be sent to lease.extensionsCHG@peabody.org.uk Once received, we will record this and forward you our solicitor’s details so that the formal process can commence.
Whether or not a leaseholder satisfies the conditions for the formal procedure does not prevent a leaseholder from trying to agree terms informally with their landlord. There are advantages and disadvantages of proceeding informally or formally which will need to be discussed in all cases with your legal advisors.
What costs are involved in extending my lease?
The upfront costs involved in a lease extension will depend on the lease you currently hold and the procedure you wish to follow;
Informal procedure:
- Peabody administration fee: £300 inc.VAT
- Valuation fee: £300 – £375 + VAT
- Peabody solicitors costs (standard lease extension): £450 - £550 + VAT
- Peabody solicitors costs (property with a Head Lease): £700 - £950 + VAT
Formal procedure:
- Peabody administration fee: £300 inc.VAT
- Your lease extension valuation: This will depend on the valuer you appoint
- Peabody valuation fee : £300 - £625 + VAT
- Deposit to Peabody of £250 or 10% of the lease extension value, whichever is greater
- Peabody solicitors costs (standard lease extension): £450 - £550 + VAT
- Peabody solicitors costs (property with a Head Lease): £700 - £950 + VAT
Please note all figures are approximate based on a standard lease. Please contact lease.extensionsCHG@peabody.org.uk for the current costs for a lease extension.
Frequently Asked Questions about Lease & Lease Extensions
My lease is a Shared Ownership lease - does this make a difference?
Yes - in the case of Shared Ownership Leases, the amount of the premium payable to extend a lease will often mean that the better option for a leaseholder in these circumstances will be to buy further shares in the property or staircase to 100% (if possible), rather than extending the lease.
In the event that extending the Shared Ownership lease is chosen as the preferred option, the rent will continue to be payable for the share not purchased. Following final staircasing of an apartment, the issues of leases becoming short will remain.
Tell me more about the informal procedure
This does not involve the service of any notices; in this case, matters are simply negotiated and agreed between the parties.
The procedure is started by instructing Peabody to carry out a lease extension valuation which you must pay for. This value is based on the full value of the property and not the share you own.
On receipt of the valuation an offer is made to you. If you are happy with the offer you accept it and provide us with your legal advisor’s details and we then instruct our solicitors to handle the transaction.
If you are unhappy with the valuation and a value cannot be agreed then you would have to follow the formal procedure.
Tell me more about the formal procedure
This can often be more expensive to undertake but the process tends to offer more security for the leaseholder.
As the leaseholder you will need to prepare to serve a statutory notice under section 42 of the leasehold Reform Act 1993. Please note, that this can take some considerable time.
The leaseholder is liable for Peabody’s reasonable costs from the date the notice is served. A notice which contains inaccuracies or descriptions can be corrected by application to the County Court but will delay proceedings.
An incomplete notice can be rejected as invalid. The date the notice is served fixes the “valuation date”. When it comes to determining the value of the new lease, this is the date where the values are effectively frozen - anything that happens subsequent to this date which increases or decreases the value of the lease will be ignored.
After serving notice, Peabody via their solicitors are entitled by law to require evidence of the leaseholder’s title to the apartment and their period of ownership. This allows 21 days.
Peabody also have the right to inspect the apartment for purposes of a valuation, subject to three days’ notice. Peabody are entitled at any time after receipt of the Tenants Notice to require the payment of a deposit. This will be either 10% of the premium proposed in the Tenants Notice or £250, whichever is greater.
Peabody via their solicitors will then serve their Counter Notice by the date specified in the leaseholder’s notice. This will be within two months of us receiving the Notice.
Leaseholders should be mindful of the following when considering a lease extension…
Within our Counter Notice we have the following options:
- Agree your right to the new lease and accept the terms
- Agree your right to the new lease and propose new terms
- Reject your right and give reasons, which will need to be determined by the county
- Claim the right to redevelopment
Peabody may claim the right to redevelopment if we can prove to a court that we intend to demolish and redevelop the building. This only applies to applications where the remaining period of the lease is less than five years from the date when the Tenants Notice was served.
If Peabody failed to serve a Counter Notice by the date specified in the Tenants Notice then the leaseholder may apply to the court for a to grant the new lease as per your Tenants Notice.
After Peabody have served the Counter Notice, if a price cannot be agreed there is a minimum statutory period for negotiation of two months but no more than six months. Ihe price cannot be agreed or some parts of the lease, then aer two months of the Counter Notice being served either party can apply to the Leasehold Valuation Tribunal (LVT) for an independent determination on the issue.
Once the LVT has determined the price, Peabody have the right to appeal to the Lands Tribunal, but may only do so with the leave of the LVT. Once a Tenants Notice has been served and registered, it may be assigned to the lease. Therefore, a leaseholder can serve the notice and then sell the apartment with the additional benefit benefit application.
If a leaseholder who has the right to a new lease dies before making an application, their personal representative may exercise the right for a period of up to two years following grant of probate or letters of administration.
Within 14 days of the LVT’s final decision (taking into account any appeals lodged) Peabody must provide a draft lease to the leaseholder.
Both parties must agree and enter into the contract within two months. From the date the Tenant Notice is served, the leaseholder is liable for all legal fees and disbursements reasonably incurred by Peabody, whether or not the application is successful.
Find out more from Peabody
Staircasing
The process of buying more shares for a Shared Ownership home is reffered to as staircasing. If you staircase to 100% you will become an outright owner.
Selling your home
Selling your Shared Ownership home is a straightforward process and is known as a resale. You can sell your Shared Ownership home at any time.
Remortgaging
Remortgaging occurs when you move from your existing mortgage lender to another lender. We can help guide you through remortgaging your home