new lease premium
📖 What is new lease premium? Meaning and definition
When a leaseholder wants to extend their lease, they have a legal right under certain circumstances to apply for a 'new lease'. The freeholder, who owns the land and the building, is entitled to receive a payment for granting this new lease, which is known as the 'premium'. This premium is a key financial component of the lease extension process.
The amount of the premium is often a point of disagreement between the leaseholder and the freeholder. The leaseholder will propose a premium, and the freeholder will typically counter-propose a higher amount. If they cannot agree, either party can apply to a Tribunal (such as the First-tier Tribunal) for a determination of the premium.
The Tribunal's role is to set the appropriate premium based on legal provisions, often found in legislation like the Leasehold Reform, Housing and Urban Development Act 1993. The valuation date for calculating the premium is usually agreed upon by the parties or set by the Tribunal. Factors like the deferment rate and capitalisation rate might be considered in the valuation process, alongside comparable sales data if available.
Ultimately, the new lease premium ensures that the freeholder is compensated for the value of the extended lease term, reflecting the financial benefit gained by the leaseholder in securing a longer interest in the property.
📋 Requirements
- The applicant must be a qualifying tenant or leaseholder.
- A notice of claim must be served by the leaseholder pursuant to section 42 of the Act.
- The freeholder must serve a counter-notice, either admitting or denying the validity of the claim.
- If the claim is admitted, the parties must attempt to agree on the premium and terms of the new lease.
📝 Procedure
- The leaseholder serves a notice of claim for a new lease, proposing a premium.
- The freeholder serves a counter-notice, admitting the claim's validity and proposing their own premium.
- If the parties cannot agree on the premium, the leaseholder applies to the Tribunal for a determination.
- The Tribunal considers evidence and arguments from both parties to set the final premium.
💡 Examples
- A leaseholder applied to the Tribunal after the freeholder counter-proposed a premium of £99,000, significantly higher than the leaseholder's initial offer of £27,730.
- The Tribunal determined a new lease premium of £5,359.00 for a flat, following an application where the leaseholder had initially proposed £3,086.00.
- A leaseholder, holding an existing lease from 1979, sought a new lease and proposed a premium of £91,000, which the Tribunal later assessed.
- The Tribunal set a premium of £135,552 for a new lease, after considering the arguments from both the leaseholder and the freeholder.
📚 Legal basis
- Leasehold Reform, Housing and Urban Development Act 1993
❓ Frequently asked questions
What is the 'new lease premium'?
It's the amount of money a leaseholder pays to the freeholder to get a new, extended lease for their property, as part of their legal right to do so.
Why do I have to pay a premium for a new lease?
The premium compensates the freeholder for the value of the extended lease term, as the leaseholder gains a longer interest in the property, which typically increases its market value.
What happens if I can't agree on the premium with my freeholder?
If you and your freeholder can't agree on the premium, either party can apply to a First-tier Tribunal to have the premium legally determined.
How is the new lease premium calculated?
The premium is calculated based on legal provisions, often considering factors like the valuation date, deferment rate, and sometimes comparable property sales, as determined by a Tribunal if there's a dispute.
Can the premium change after I make an offer?
Yes, it's common for the freeholder to propose a different (usually higher) premium in their counter-notice after you make your initial offer. The final amount is then negotiated or determined by a Tribunal.
Do I need a solicitor to help with a new lease premium dispute?
While you can represent yourself, the process of determining a new lease premium can be complex, involving valuations and legal arguments. It is often advisable to consult with a qualified solicitor who specialises in leasehold matters.