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The Benefits of Approaching your Freeholder Informally for a Lease Extension

Tuesday, 9th September 2014 | by: Matthew Price

The most common way for a leaseholder to extend their lease involves a solicitor serving a Section 42 notice (S42) on their freeholder under the Leasehold Reform, Housing and Urban Development Act 1993. This notice not only compels the Freeholder to grant the lessee a new lease equal to the existing term plus 90 years at a peppercorn ground rent, it also fixes the valuation date.

The growth in house prices of the last year has provided a challenging environment whereby a valuation undertaken at the beginning of the month could potentially be out of date if the lessee waited until the end of the month to serve a notice. Whilst an individual area may have experienced an annual growth rate of say 20%, contrasting sales in a singular road occasionally exhibited even higher rises. The relationship between lessee, surveyor and solicitor was ever more important.

There are of course circumstances whereby the lessee is forced to wait before they can serve notice; the most obvious is the requirement to have owned the property for a minimum of 2 years.

Whilst serving a S42 notice provides many benefits, the lessee is also duty bound to cover the vast majority of the Freeholder’s professional fees on top of their own. This includes the freeholder’s surveyor’s valuation fee and the solicitor’s fee for receiving, reviewing and serving a counter notice.

With the market appearing to cool, the rush to serve a S42 notice is somewhat diminished and this in itself presents an opportunity in certain circumstances.

Properties with leases greater than 80 years where no marriage value is payable would be the most obvious example of where approaching your Freeholder for an informal/voluntary extension would be most beneficial. A wait of a month is not going to result in a noticeable rise in the valuation and given that the parameters between a low and high valuation, a fair premium can often be agreed.

Below 80 years and this approach does need to be tempered with caution and your surveyor can advise you whether or not this is your best option. Some freeholders are either very unlikely to entertain anything of this nature as a matter of policy or will come back with highly inflated offers often with shorter lease terms and high ground rents.

Peter Barry Chartered Surveyors can advise you when it is most appropriate to approach your freeholder and having undertaken your valuation, draft an initial letter on your behalf detailing your offer and then go on to negotiate if required. You may be surprised how often this route results in an overall better outcome than the formal notice route.