Can A Freeholder Refuse To Extend A Lease?

Nikka Sulton

Can A Freeholder Refuse To Extend A Lease?

Are you navigating the complexities of extending your leasehold property? Concerned about your rights or potential refusal from your landlord? Delve into our exploration of whether a freeholder can reject your lease extension request.

If you’re seeking clarity on lease extensions and find yourself scouring the web for answers, explore our blogs on “What is a Lease Extension?” and “How Much Does it Cost to Extend a Leasehold?” Alternatively, reach out to us for expert guidance. Leasehold extension entails intricate procedures best managed by professionals.

Why do I need to extend my lease?

For leasehold property owners, comprehending the intricate relationship between remaining lease years and property value is essential. The diminishing lease term correlates directly with a decrease in property worth. When the lease dwindles below the 80-year mark, extending it becomes a notably more expensive endeavor. This cost escalation is primarily due to additional fees such as the marriage value, which is payable to the landlord upon lease extension. As the lease term decreases further, the financial burden of extending it amplifies. Ultimately, should the lease expire, ownership automatically reverts to the landlord, underscoring the critical importance of timely lease extension considerations.

Does the freeholder legally have to grant you a lease extension?

Whether a lease extension is feasible hinges largely on the duration of your lease ownership. If you’ve held the lease for less than two years, the freeholder retains the right to refuse extension requests. However, this refusal isn’t absolute; some landlords might consider extending leases for tenants with less than two years’ tenure, albeit informally. Such informal extensions lack legal backing and can vary significantly in terms and duration. Additionally, the freeholder reserves the prerogative to withdraw from the extension process at any juncture.

Opting for an informal lease extension entails negotiating with the landlord sans legal recourse. While this route may seem less daunting, landlords retain the liberty to reject requests and set arbitrary extension terms. Despite the absence of legal and surveyor fees, securing a favorable informal extension is not guaranteed. Moreover, the process is expedited compared to formal avenues.

However, informal extensions often result in less favorable terms. Landlords may impose higher ground rents, additional charges, or unfavorable lease alterations. In contrast, formal or statutory lease extensions offer several advantages. These include the addition of lease years, reduction of ground rent to zero, maintenance of existing lease terms, and increased tenant control. Notably, eligibility for formal extensions requires property ownership exceeding the two-year threshold.

What are my lease extension rights?

Under the Leasehold Reform Housing & Urban Development Act 1993, leaseholders meeting specific criteria have a legal entitlement to extend their lease. To qualify for a statutory or formal lease extension, the leaseholder must have resided in the property for at least two years, and the original lease duration must have exceeded 21 years. This statutory extension grants an additional 90 years to the lease.

If a leaseholder hasn’t met the two-year residency requirement, the freeholder can reject the lease extension request. However, negotiation for an informal lease extension may be possible, albeit with a potentially higher premium.

For prospective property buyers faced with a short lease, there’s a workaround to the two-year waiting period. If the current owner has owned the property for over two years, they can initiate the formal lease extension process by serving a section 42 notice, which incurs no cost. Upon completion of the property sale, the buyer inherits the benefit of this application, allowing them to expedite the lease extension without delay.

Are any types of property exempt from the right to extend my lease?

Certain types of properties are exempt from the right to lease extension, granting freeholders the authority to refuse such requests. These exemptions include:

Commercial properties: Only residential leases are eligible for lease extension.
Shared ownership leases: Lease extension is permissible only after attaining full ownership (100%).
Flats owned by charitable housing trusts: Properties under charitable trusts’ management fall outside the scope of lease extension.
Properties within cathedral boundaries: Lease extension rights do not apply to properties situated within cathedral precincts.
Crown-owned properties: Although technically exempt, Crown properties often cooperate with lease extension applications for qualifying residential units.

Notably, properties owned by the National Trust are excluded from the automatic 90-year statutory lease extension. Instead, they may qualify for a 50-year extension under the Leasehold Reform Act 1967, subject to certain conditions. For further clarification on this matter, feel free to consult our solicitors for tailored advice.

What if I have owned the lease for more than 2 years?

If you’ve held the lease for more than two years, you possess the right to pursue a statutory lease extension under the Leasehold Reform, Housing & Urban Development Act 1993. This entitles leaseholders to elongate their lease by an additional 90 years, albeit at a cost—the premium. The premium calculation adheres to a predetermined formula, offering transparency in cost assessment.

In the event of the freeholder’s reluctance to consent or failure to respond to extension requests, legal recourse is available. Solicitors can initiate formal proceedings by serving a Tenant’s Notice, compelling the freeholder to engage in the extension process.

While the landlord’s grounds for refusal are limited, exceptions may arise if they can substantiate plans for site development that would be impeded by the extension. However, reassurance lies in the Leasehold Reform, Housing & Urban Development Act 1993, which significantly favours leaseholders, making the granting of lease extensions a near certainty.

Am I a qualifying tenant for a lease extension?

The key conditions you need to meet to qualify for the right to extend a lease in the UK are:

As discussed, you must have held the lease for at least 2 years.
The lease must have originally been at least 21 years long.
The freeholder is not the Crown, National Trust or part of a building within a cathedral precinct.

Can there be complications in the lease extension process?

The landlord’s aim is to secure the highest possible premium, considering the loss of future ground rent. Disputes over the offered premium may escalate to a First Tier Tribunal, substantially increasing legal expenses.

Given that landlords incur their legal costs for tribunal proceedings, they typically prefer avoiding this route. Unless there’s a significant discrepancy between the offered and desired premiums, the expense of tribunal proceedings outweighs the benefits for the landlord. Hence, reaching an agreement outside of tribunal proceedings serves the mutual interests of both parties.

A crucial consideration is the timing: failure to reach an agreement or apply to the tribunal within six months since the counter-notice results in a 12-month waiting period before recommencing the process. Similarly, if the court deems the premium figure unreasonable, another 12-month wait ensues. Seeking professional advice ensures a well-informed premium offer, mitigating delays and frustrations associated with prolonged waiting periods.

While dealing with a challenging landlord might seem daunting, engaging professionals like Taylor can streamline the lease extension process. Despite potential hurdles, reaching an agreement with the freeholder is usually achievable. Professional assistance from experienced solicitors familiar with lease extensions is recommended to navigate this intricate process smoothly.