Assign a lease extension from seller to buyer

Linz Darlington | April 2024

Buyers of flats, their conveyancers and their mortgage lenders are increasingly put off by buying flats with leases below 100 years, or with high ground rents.

A statutory lease extension would solve both issues. The rub is that a buyer of a flat is not eligible to start a lease extension until they have been the registered owner of the flat for two years.

One way to get around this is for the seller of the flat to start the lease extension process and then “assign” or transfer the lease extension to the buyer when they sell the flat. Technically this is called assigning the benefit of the Section 42 Notice.

While this seems like an easy solution it is far from ideal.

First, it does create additional legal work (and costs).

Second, many solicitors don’t like assigning lease extensions – the fact that we’ve listed a ten-step process below shows how fraught it is with pitfalls. A mistake can mean the lease extension process fails.

We would always recommend that flat owners extend their lease well before selling – so they can market the flat with a nice long lease and get full market value. This avoids the stress of trying to sell a flat with an ongoing lease extension.

If you do want to assign a lease extension from seller to buyer, this guide explains how you would do so.

Our suggestion is that it is the buyer (and their solicitor) who take responsibility for the lease extension and ensuring the notice is drafted, served and assigned correctly. It’s the buyer, not the seller, who will be disadvantaged if this is done wrong.

Step 1: Check the seller is eligible for a lease extension

The first thing to do is check that the seller is eligible for a lease extension – i.e. that they’ve been the registered owner at of the flat for two years.

If you purchase a copy of the Title Register, you can check this. It’s the date in brackets below you are looking at:

Step 2: Ascertain how much the lease extension will cost

You should get a lease extension valuation at this stage to tell you how much the lease extension will cost once it has been assigned to the buyer.

If the flat has fewer than 80 years on its existing lease, you should explicitly tell the valuer that the flat has been sold and the agreed sale price. This can have an impact on how much marriage value is payable as part of the lease extension premium.

If you skip the valuation, you will have no concrete idea of how much the lease extension will cost – and could be in for a nasty surprise later.

Step 3: Decide who is going to pay for it

By the time the lease extension premium and freeholder’s fees are being paid, the seller will be long gone.

The buyer will be on the hook to pay their legal and valuation fees and the lease extension premium. The buyer, rather than the seller, will also be liable to pay the freeholder’s legal and valuation costs. This last point was recently clarified in Gray’s Inn Investments Ltd v Sally Claire Jolleys [2024] UKUT 2 (LC).

One option is for the buyer to reduce their offer price for the flat to reflect the costs of the lease extension. However, often this isn’t practical because their lender won’t lend them the money for the lease extension, and they need their cash for the deposit for the flat purchase.

Alternatively, it is possible to organise for the seller to pay for costs relating to the lease extension out of the proceeds of the sale. In this case, it needs to be organised for a “retention” to be held by either the buyer or the seller’s conveyancing solicitor. A retention is a sum of money which will cover the costs associated with the lease extension as they come due.

Step 4: Draft Section 42 Notice and Deed of Assignment

The Section 42 Notice and Deed of Assignment should be drafted, and our view is that the best professional to take responsibility for this is the buyer’s solicitor. Ultimately, it’s the buyer, not the seller, who needs to get this done right.

Section 42 Notice: this is the formal document that, when served, starts the lease extension.

Deed of Assignment: which will assign the benefit of the lease extension to the buyer from the seller.

The buyer will not actually become the legal owner of a property until they are registered as proprietor at the Land Registry. Accordingly, the Deed of Assignment should be drafted so the benefit of the lease extension is assigned on completion of the registration at the Land Registry, rather than the day the buyer gets the keys. This was clarified in the case of Ryan v Villarosa [2018] EWHC 1914 (Ch); [2019] 1 W.L.R. 515.

Step 5: Write it into the contract

As part of a flat sale, a contract will be drawn up. This is the agreement for the buyer to purchase the property from the seller.

This contract should have an addendum related to the lease extension. Usually, it will say that the seller agrees to do several things after the contracts are exchanged. These usually include agreeing to:

  • Sign / serve the section 42 notice after exchange
  • Pay the freeholder’s deposit if requested, which is the greater of £250 or 10% of the offer proposed in the Section 42 notice
  • Grant the freeholder access to the property to value it
  • Provide the title documents to the freeholder
  • Forward copies of all correspondence relating to the lease extension to the buyer
  • Enter a “Deed of Assignment” on completion, assigning the lease extension from seller to buyer.
  • Leave the retention mentioned above to pay for the lease extension – usually if the lease extension fails, this money should also go to the buyer

Step 6: Exchange Contracts & Serve Notice

Once the contracts have been exchanged, the buyer of a property is legally committed to purchasing it.

It is usually at this point that the Section 42 Notice is served. It will have to be signed by the seller or someone they have authorised, but our view is that the buyer should take responsibility for making sure it is served correctly. They should also register the notice at the Land Registry, using a Unilateral Notice.

A seller usually doesn’t want to serve the notice before exchange of contracts, because they would be committing to the lease extension process before the stage in the sale process where the buyer has committed to buy the flat.

Step 7: Complete Flat Purchase and Assign Lease Extension

The flat sale is completed by the money being paid from buyer to seller, and the Deed of Assignment and transfer document are dated by the respective solicitors.

Step 8: Expedite Land Registry Application

There is a huge backlog at the Land Registry. This means even if you complete a flat purchase and get the keys, the registration might not go through for months afterwards.

This can create an issue because during this time the seller is still listed at the Land Registry as the legal owner.

Accordingly, the buyer’s solicitor should request an expedition at the Land Registry on the grounds that the registration is holding up the lease extension process.

Step 9: Notify the Freeholder

As part of the purchase process, the buyer’s solicitor should send a “Notice of Transfer” to the freeholder. They should include a copy of the Deed of Assignment with the Notice of Transfer.

Step 10: Complete Lease Extension

The buyer needs to take full responsibility for the lease extension process. They should make sure that:

  • They have copies of all the documents related to the lease extension process
  • Their solicitor is in communication with the freeholder and their solicitor
  • Their valuer is in contact with freeholder’s valuer, and negotiations are underway
  • They understand where they are in relation to the statutory deadlines

In conclusion

As set out above, this process is long and windy.

If you are a buyer, it’s much easier to buy a flat which already has a lease extension.

If you’re a seller, it’s much better to extend your lease before you market the flat.

If you do decide to assign a lease extension, we would recommend that a buyer finds a specialist solicitor who can handle the lease extension, but also which has a conveyancing team as part of the same firm. Having one firm handle both transactions will reduce the chance of things slipping through the gaps.

Start your lease extension today

Article author photo

Linz is the CEO and co-founder of Homehold. He’s always looking at how we can improve our service and better support you through the lease extension process. If you have any questions about your lease he’d be delighted to help.

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