Lease extension advice following the passing of the Leasehold and Freehold Reform Act 2024

Every month the Farrer & Co Residential Property Partners give us a brief insight into their working lives. This month we provide an overview of a lease extension query received from a new client following the recent passing of the Leasehold and Freehold Reform Act 2024 (Act). 

The Brief

A few weeks ago we were contacted by a client who wanted advice on a lease extension. She bought a large four bedroom unmodernised flat in Marylebone two years ago with a lease length of 60 years unexpired. She has been keen ever since to extend the lease (given that her previous solicitors failed to advise her to make the lease extension claim as part of the conveyancing process) so that she can obtain a mortgage to finance major refurbishment works. The current lease length means that financing is impossible with most high street lenders. 

Executing the Brief 

Our client had been anxiously awaiting updates on the proposals for reform of the leasehold system and was delighted to hear that the Act was pushed through by Parliament at the end of May as she understood this would mean it would now be cheaper and simpler for her to extend her lease.

We had to give our client the unwelcome news at the outset that although the Act has been passed it has not yet come into force. This means that for the time being we continue to operate under the existing regimes of the Leasehold Reform Act 1967 in relation to houses and the Leasehold Reform Act 1993 in relation to flats. It will be for the new Government to set the commencement date for the Act and also to table secondary legislation that is required to provide detail on the more controversial elements of the Act, such as the setting of the valuation methodology. So for our client, and many tenants contemplating enfranchisement, a period of limbo, potentially stretching into 2025/26 or further, still exists. 

The good news was that our client had now owned the flat for the requisite two years so she could still make a claim under the existing regime. This requirement for two years ownership has been perceived by many as an annoyance and will be abolished once the new Act commences.  

Our client did question whether she should simply await the commencement of the new Act. We explained that in her specific circumstances, where she has put her refurbishment works on hold and she has a mid-length lease, there is good reason to submit a claim as soon as she can. Serving notice now means that she will fix the valuation date on service and she can see how the claim proceeds. As lease extensions typically take a period of six to 12 months to move to completion, it is possible that she will have visibility on the reforms, and in any event she may be able to apply pressure on her landlord to a do a favourable deal. If there is no movement on the landlord’s side in line with the anticipated reforms then we can consider her options and she can simply withdraw and proceed at a later date under the new regime. We did discuss that the downside for her would be liability for the landlord’s costs which must be met by tenants under the existing regime, but she was prepared to accept this as she is very keen to extend her lease. She was also happy to accept a 90-year lease extension versus the 990-year lease that will be available under the new regime.  

With all points considered our client instructed us to serve notice to start the claim.  

The debrief

We have already received the landlord’s counternotice, so negotiations for our client’s lease extension are full steam ahead. All indications are that the landlord is prepared to discuss the premium as it may be in his favour to agree a deal now, with some reduction in the marriage value. It seems likely that our client and the landlord will be able to reach a sensible agreement on the premium that will allow our client to finally proceed with the financing and subsequent refurbishment of her flat. Our client is optimistic and grateful to have finally moved forward to discussions with her landlord. 

We are always happy to discuss enfranchisement and strategic decisions especially given the period of uncertainty that we are now in. Any tenant contemplating enfranchisement, or with a lease of 82 years or less, should seek specialist advice on strategy and the options available to them. 

For further reading please refer to our article considering what the Act means for leasehold enfranchisement and extension (which in turn links to an article considering the impact of the Act on estate management).

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, July 2024