Leasehold Extensions

The premium to be paid for the new lease, according to Schedule 13, Part II of the Leasehold Reform, Housing and Urban Development Act 1993 (as amended), shall be the total of:

• the diminution in the value of the landlord's interest in the flat; that is, the difference between the value of his interest now with the present lease and the value of his interest after the grant of the new lease with the extra 90 years.
• the landlord's share of the marriage value;
• compensation for loss arising from the grant of the new lease.

The diminution in the value of the landlord's interest is, effectively:

• the loss of the income from the ground rent for the remainder of the original term (as the whole term of the new lease will be at peppercorn rent);
• the loss due to the additional 90 years wait for the reversion 
  (the surrender of the flat at the expiry of the term).

The marriage value is taken as the potential for increase in the value of the flat arising from the grant of the new lease; the Act requires that this 'profit' shall be shared between the parties. The proportion of the split of marriage value is fixed by the legislation at 50:50 division between the landlord and the leaseholder. In the calculation of the marriage value the leaseholder's and landlord's valuers will rely on local knowledge and experience to assess the increase in value in the flat arising from the new lease.

The compensation is to provide remedy to the landlord for any other diminution in the value of his interest in other property (other flats in the building or the building itself) and any loss or damage arising from the grant of the new lease. It is difficult to find examples of where a landlord could claim compensation since he will, in most cases, retain the freehold. Probably the only possibilities could be a claim for loss of opportunity for redevelopment potential or for a reconversion of a house in flats back to a single dwelling house.

The Act does not require a formal valuation to be carried out but it would be prudent to obtain one. The valuation will provide the basis for the leaseholder's offer to the landlord contained in the Tenant's Notice.

The offer does not need to be the same as the valuation, and there is no legal obligation to reveal the details of the valuation.

The landlord may accept the leaseholder's offer or respond, in his Counter-Notice, with his own asking price. It is to be hoped that the parties will then enter into negotiation and settle the premium. If this cannot be achieved then either party may make application to the Leasehold Valuation Tribunal, in accordance with the set timescales.

The Leasehold Valuation Tribunal will, after hearing the submissions of both parties, determine all outstanding issues relating to the premium:

• the diminution in the value of the landlord's interest;
• the amount of the marriage value;
• the proportional split of the premium where there is an intermediate landlord;
• the amount of compensation (if any).

The LVT's role is not to decide in favour of either party's valuation but to determine the issues independently; the Tribunal's determination may not, therefore, necessarily reflect the prices proposed by either the leaseholder or the landlord.

More information on LVT procedures is contained in our leaflet 'Application to the LVT'.

The legislation requires that the value of the interest to be acquired should be determined in accordance with general market values - assuming a willing vendor and a willing purchaser. The principles of the Act are not to provide a forced bargain for the leaseholder but adequately to compensate the landlord for the diminution in the value of his property - a fair price based as closely as practicable on open market values. The essential difficulty is the assessment of an 'open market value' in the artificial situation created by the imposition of the leaseholder's rights.