The Leasehold Reform Act – The Concept of New for Old

Many insurance companies offer ‘New for Old’ policies.  The Leasehold Reform Act is similar; you can get a new lease in exchange for your old one, but, as usual, there is a price to be paid.

Over the course of the last few months we have tried to explain some of the detail of The Leasehold Reform, Housing and Urban Development Act 1993.  We have looked at how the various elements of the premium are calculated and we thought that this would now be a good time to recap some of the ground that we have covered and talk about the procedures to be followed when applying for a new lease.

As we’ve said in the past, almost every enquiry that we receive starts with the potential client saying, ‘I want to extend my existing lease’.  This is where the concept of ‘New for Old’ comes in.  Under Chapter II of Part 1 of The Leasehold Reform, Housing and Urban Development Act 1993 a lessee does not have the right to extend their existing lease, but does have the right to acquire a new lease in place of the existing lease which is:

• At a peppercorn (i.e. nominal) rent, and
• For a term expiring 90 years after the term date of the existing lease.

We often get enquiries from lessees who say, ‘how much will it be if I only want to extend the lease by ..x… years?’ We always have to say that the Leasehold Reform Act does not give this option.  The only possibility under the Act is for a new lease for an additional 90 years.  It may be possible to negotiate an alternative lease with the freeholder, but this would be a private transaction and not covered by the terms of the Leasehold Reform Act.

A lessee can apply for a new lease under the act at more or less any time.  The only real stipulation is that they must have been the ‘Registered Proprietor’ of the lease for at least two years.  This means that title must be registered at HM Land Registry for at least two years before submitting a claim for a new lease.

In order to qualify the existing lease must be a ‘long lease’. This will generally be a lease for a fixed term of more than 21 years.  Historically, the majority of residential leases were for 99 years, but more recent leases are often for longer terms such as 125 years.

The landlord will normally, but not always, be the freeholder of the building. This could be an individual or a company. You will need to establish the details of the freeholder in order to be able to serve notice on them.

In order to start the process of obtaining a new lease it is necessary for the lessee to serve a formal notice on the landlord under Section 42 of The Leasehold Reform, Housing and Urban Development Act 1993.  There is no prescribed format for the notice, but in order to be valid it must contain the following information:

• The full name of the lessee/s and the address of the flat
• Contain sufficient particulars of the flat to identify the property to which the claim extends
• Contain particulars of the tenant’s lease, including the date it was entered into, the term for which it was granted and the date of commencement of the term
• Specify the premium which the tenant proposes to pay
• Where any other amount will be payable by the tenant/s in accordance with any provision of Schedule 13 (i.e. to any other landlord) the amount which is proposed to be paid in accordance with that provision
• Specify the terms which the tenant proposes should be contained in the new lease
• State the name of the person (if any) appointed by the tenant/s to act for them in connection with this claim, and an address in England or Wales at which notices may be given to such a person
• Specify the date by which the landlord must respond to the notice (this date must not be less than two months after the date the notice is given)
• Be signed personally by the tenant, or each joint tenant

The last point is particularly important. One of the most common reasons for a Section 42 Notice to be considered invalid is due to it not being personally signed by the tenant or tenants. The notice cannot be signed by an agent on behalf of the tenant.

It is worth noting at this point that The Leasehold Reform, Housing and Urban Development Act 1993 uses the term tenant throughout. In this particular context when we use the word ‘tenant’ it actually means the lessee.

In the next post we will go on to talk about what happens when the landlord (freeholder) receives the Section 42 Notice.

If at this point you have any further questions as either the tenant or the landlord, please feel free to contact us.