Beware the Voluntary Lease Extension

We all know that leases are wasting assets and that the process involved in extending them under the current legislation is expensive and complex. So, is your landlord really throwing you a lifeline if he/she offers you a voluntary lease extension?
 
Leases granted on a voluntary basis are generally on a “take it or leave it” basis. This means that there is little opportunity for negotiation and, unlike under the legislation, you can’t ask the tribunal to decide which terms are appropriate or force the landlord to grant the lease.
 
Ground Rent Headache
If your landlord is offering you a voluntary lease, the level of annual rent is their choice. A peppercorn rent is likely to attract a higher lease premium. However, if the annual rent at the beginning of the lease or at any time during the lease term is more than £250 a year outside of London or £1,000 in London then the lease can be considered to be an Assured Shorthold Tenancy (“AST”).
 
Many high street lenders will not lend in these circumstances as, in theory, the lease can be brought to an end in the same way as an AST and unlike in the case of forfeiture, there is no ability for the flat owner to apply for relief.
 
Similarly, some high street lenders will not lend on leases with ground rents which start at a figure which is more than 0.1% of the value of the flat or contain clauses which provide for the rent to increase in accordance with the Retail Price Index, every 5, 10 or even 15 years.
 
Early Termination
Leases granted under the legislation will include a clause which allows the landlord to bring the new lease to an end during the last 12 months of the old lease term and during the last 5 years of the term of the new lease. This is only available in circumstances where the landlord wishes to develop the whole or a substantial part of the flat block. A court order is required and compensation is payable to the flat owner.
 
Some landlords will offer voluntary leases on statutory terms but which include a clause which provides that if the court will not order possession of the flat in those circumstances, an independent surveyor will determine whether or not possession can be granted and how much compensation will be payable. As you might expect, lenders are not used to this additional risk and can refuse to lend or consent to the new lease if this clause is not removed or modified.
 
Pesky Pets & Noisy Neighbours
Two issues which never fail to get people talking and keep the courts busy are pets and wooden floors. Many buildings which have been converted into flats have very poor soundproofing and wooden floors and pets can cause real headaches for flat owners. For this reason, often landlords will include new restrictions on pets and hardwood floors in voluntary leases. If you have a pet or hate carpets you will need to look out for this.
 
General Nuisance
Watch out for other clauses which can make the new lease less tenant friendly such as increased interest payable on late paid rents, extortionate registration fees or increased restrictions on selling or subletting the flat.
 
Even if you don’t have a mortgage on your flat, you should always instruct a specialist solicitor to check the lease for you to make sure that there are no hidden bear traps and to advise you as to whether a statutory lease extension would be a better option.
 
Lucy Riley, Head of Leasehold Enfranchisement at Nockolds Solicitors

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