The lease extension cost can range from £3600 to £6600, depending on many factors:
- The size and condition of the property.
- The value of your property.
- The price of your solicitors and much more.
If you are a tenant in England and Wales looking to extend your lease, the process and lease extension costs can seem quite steep. However, the process can be pretty straightforward if you are eligible for a lease extension.
In this guide, we will cover the basics of a lease extension, the costs associated with the process, and what things you should consider when applying for a lease extension. Use our interactive menu below for more information:
- The Basics Of Lease Extensions
- What Is The Lease Extension Cost?
- How To Get Started With Lease Extensions
- Things To Watch Out For Lease Extensions
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The Basics Of Lease Extensions
What Is A Lease?
A lease is a legally binding agreement between a landlord and a tenant which creates an interest in a property for a defined term of years. There is usually a transaction of payment or rent at the outset.
As a leaseholder (tenant), the lease will state your responsibilities and rights. As well as the rights and obligations of your landlord. It allows you to occupy and use the property for a set period, otherwise known as the term. Once the set time runs its course, reversion occurs. This is when the ownership of the property is returned to the landlord.
What Is A Lease Extension?
The lease extension is a process where you extend the amount of time before you have to return the ownership of the property to your landlord. A lease extension is achieved by negotiating with your landlord or by serving a Section 42 Notice and financial offering — a formal request from the leaseholder to the landlord to extend their lease.
To prevent reversion, leaseholders are legally entitled by the 1993 act (Leasehold Reform Housing and Urban Development Act) to have their lease extended by 90 years. But, it would be best if you meet set criteria, and as the leaseholder, you will need a professional leasehold valuation.
Why Should You Extend Your Lease?
Unfortunately, your lease will devalue over time, and so will your property. During a lease’s early years, the housing market increase typically offsets this. But, when the term reaches 70 years or less, it will become much more challenging to obtain a mortgage and, as a result, much more difficult to sell the property.
The lease extension reverses this, so at the sale, the market’s total value can be released. You should extend your lease in good time, as the longer you wait, the more the lease extension cost will increase.
Are You Eligible For A Lease Extension?
You are eligible for a lease extension if you have owned the property for at least 2 years and the original term on the lease is at least 21 years.
If the landlord/freeholder is part of a charitable housing trust and the property is part of the charity’s portfolio, you will not be eligible for a lease extension. Lease extensions do not apply to business or commercial leases.
What Am I Entitled To During The Procedure?
You are entitled to 90 years added to your remaining term during and on acceptance of the lease extension. The ground rent will undergo ‘peppercorn’ or be reduced to zero for the lease. You are also entitled to a premium calculated according to the law.
What Is The Freeholder Entitled To During A Lease Extension?
The freeholder is entitled to the premium for extending the lease, based on a formula set out by the Leasehold Reform Housing and Urban Development Act 1993.
What Is A Marriage Value In Leasehold Property?
The marriage value is the difference between an existing lease’s value and a short lease’s value. The marriage value only applies when the lease is less than 80 years old.
What Is The Lease Extension Cost?
When you extend your lease, there are many lease extension costs to consider, including; solicitor fees, land registry fees, surveyors fees, freeholder fees and the lease extension premium. If an agreement cannot be made between the leaseholder and landlord, there may be court and leasehold valuation tribunal fees.
The leasehold extension premium is the sum you pay your freeholder for extending your lease.
Following the standard lease extension route will require specialist support from solicitors and surveyors. This is a highly technical area of law, and if you get it wrong, you will lose your rights under the Leasehold Reform Act 1993 for twelve months.
Our Lease Extension Cost Guide:
The total legal extension cost (not including the lease extension premium) will range from £3600 to £6600.
- RICS Lease Extension Valuation: £600 to £899.
- Freeholders Lease Extension Valuation: £600 to £899.
- Section 42 Tenant’s Notice: £600 to £1200.
- Surveyor Negotiations (If Applicable): £150 – £200 Per Hour.
- Lease Extension Conveyancing: £600 – £1200.
- Freeholders Lease Extension Conveyancing: £600 – £1200.
- Lease Extension Stamp Duty HMRC: Depends On Property.
Your RICS Lease Extension Valuation is required to value what price or premium you should pay to extend the lease by an additional 90 years.
If your freeholder/landlord agrees to the original premium, this is not applicable.
The standard serving of the section 42 notice on your landlord sets out your rights and offers to extend your lease.
If your landlord rejects the original offer and the landlord puts forward a section 45 counter notice, then your solicitor will need to support you with further negotiations to find a figure all parties will agree to.
As a leaseholder, you will exercise leaseholders’ legal rights to extend their lease to either sell or remortgage. You will need a conveyancer for this.
As a freeholder, you will exercise freeholder and landlord legal rights to extend your lease to either sell or remortgage. You will need a conveyancer for this.
Depending on the property’s value, the stamp duty required will change; it can range between £0 and a couple of thousand.
You can use a lease extension calculator to work a broad-range estimate for your lease extension. You should note that this is simply an estimation and should not be used as a valuation from a chartered surveyor.
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How To Get Started With Lease Extensions?
If you want to extend your lease by 90 years and get started with lease extensions, then before you begin the process, you should:
- Make sure you are eligible for a lease extension.
- Select and instruct a conveyancer to carry out the legal side of the process.
- Assess the premium and ensure you have enough money to complete the process.
- Gather the information and documents you need, including the tenant’s notice.
To be eligible for a lease extension, you must ensure that you have already owned the property for at least two years — how long is left is not relevant. To start the process, you must serve the section 42 notice to your competent landlord or the landlord whose interest in the property can grant a further 90 years.
In most cases, the competent landlord will be the freeholder, but you should make sure as occasionally the competent landlord will have an intermediate lease which is too short of giving a 90-year extension. You will still be able to extend your lease, but you need to identify the freeholder.
To complete the legal process with ease, it is recommended that you instruct a conveyancer and valuer. They will be able to offer you knowledge and advice and carry out all the paperwork. The valuer will help you negotiate the outcome of cases, advise how much to offer in the notice, respond to any counter-notices and negotiate the settling price.
The conveyancer will prepare your documents for your application, serve the notices, respond to the landlord’s requests and deal with the legal process. Before selecting either solicitor or valuer, you should check their reviews and testimonials to ensure they have the proper knowledge.
As with all things property buying, selling and extending, we recommend you get a valuation done of the property. The valuation will help guide you to the best and worst figures to base the premium.
When considering the premium, you should listen to your value and think you will be paying the landlord’s costs. The eventual price of the new lease will end up being the premium.
You must make sure you can pay all solicitor’s and valuer’s fees; if you withdraw from the application after serving your notice, you will be liable to the landlord’s legal and surveyor costs.
Before your solicitor serves the section 42 notice, you will need to gather the relevant documentation and ensure that the information is valid. You should also ensure you are prepared to challenge any counter-notices from the landlord.
You will need the following documents:
- The identification of the competent landlord — you will need the name and address of the person or company.
- Address and name of relevant head leaseholders.
- A copy of your lease and documents to prove your ownership of the property.
- The tenant’s notice triggers legal proceedings. You should ensure that this is accurate, as if there are mistakes, you will have to pay a cost to fix it once handed into court — or face liable action or even rejection from the landlord.
The Tenants Notice
You should register the tenant’s notice with the HM Land Registry. This will protect you if your landlord sells the freehold, and the procedure will continue for the new owner. Serving the section 42 notice sets the amount of years left on the lease and the property’s present value.
According to the law, under section 42 of the 1993 act, the notice must contain the following:
- Full name and address.
- Information to identify the property in question.
- Details of the lease, including when it starts, and the years it wishes to be granted.
- The premium you are proposing and the amounts you are willing to pay.
- The terms of the new lease.
- The name and address of your solicitor.
- The date the landlord must provide their counter notice will be able to have two months from when section 42 is served to respond.
Things To Watch Out For Lease Extensions?
When you serve the freeholder/landlord with a section 42 notice, there are several things to look out for:
Can A Lease Extension Be Refused?
If you are eligible for a lease extension (owning the property for more than two years), your freeholder cannot refuse your lease extension. They can, however, serve you with a counter notice which will renegotiate the lease terms.
How Do I Proceed With An Absent Freeholder?
If you have an absent freeholder, this should allow you to apply for a new lease. If the landlord is a company in receivership, you can serve the notice to the receiver, and if the landlord is bankrupt, you can serve the notice to the trustee in bankruptcy. Under the 1993 act, they must accept this, serve a counter notice and grant the new lease.
If the landlord cannot be found, you should apply to your county court for a vesting order so you can extend the lease. If the court is happy with your eligibility, it will grant you the lease in the landlord’s absence.
What Is The Minimum Lease Extension?
At the moment, leaseholders of a flat can extend their leases as often as they wish for 90 years, but a leaseholder of a house can only extend their lease once and for 50 years.
What Is An Informal Lease Extension?
An informal lease extension is where the leaseholder will contact their landlord and try to negotiate a lease extension without using a section 42 notice and excessive amounts of conveyancing. No laws or regulations exist if the leaseholder decides to go down this route, and they are not protected. But, if you need free legal advice, you can contact The Leasehold Advisory Service (LEASE).