Lease Extension Solicitors

What is a lease extension?

The law gives leaseholders of residential property the right to extend the Term of their leases.

If you purchase a leasehold property you do so for a fixed period that is stipulated in the lease, this is known as the “Term”. When the Term ends, the ownership of your property reverts to the landlord.

The remaining Term of a lease affects the value of the property: the shorter the lease, the less the property is worth. So, it is in your interest to either extend the Term of the lease before it expires.

There are 4.5 million leasehold homes in England, and it’s the most common way of owning a flat. Owning the leasehold gives you the right to live in the flat for a set number of years, after which the ownership of the flat will fall back to the landlord. Most residential leases have very long terms – we’re talking 100 years, 250 years or even 999 years – so you’re probably not too worried about the lease running out of time.

If the lease on your flat is getting short – under 80 years is the key age of a lease – don’t worry. You have a legal right to extend it under the Leasehold Reform Housing and Urban Development Act 1993.

Why do I need to extend my lease?

Mortgage companies get very nervous about short leases. When a lease gets under 90 years or so, you will find that your flat is much more difficult to mortgage and sell. This is when you may need to think about extending your lease.

Who is able to extend a lease?

If you have owned your flat for at least two years, you are legally entitled to an extension. The relevant Act is the Leasehold Reform, Housing and Urban Development Act 1993. The Act enforces leaseholders’ right to add 90 years to the lease term and reduce their ground rent to £nil as long as the set procedure under the Act is followed – meaning the freeholder cannot say no.

If you have owned the flat for less than two years, then you can always talk to the landlord informally about adding an extension. You just won’t be able to use the statutory procedure until the two years have passed.

Different rules apply to leasehold houses. See “What if I own a leasehold house?” below.

The cost of extending a lease is based on a set formula that takes into account:

• The value of the property
• The number of years left on the lease
• The annual ground rent
• The value of improvements leaseholders have made to the flat
• Other factors like investment returns

It’s a fairly complex calculation, but a surveyor will take care of this for you. We have a free calculator which you can use to get a rough idea of the cost.

Instruct an experienced valuer in the enfranchisement field to get reliable advice. It is also important to highlight that when making an offer under the 1993 Act the offer must be a bona fide offer – i.e. a genuine offer. An expert valuer will be able to advise what offer should be made.

What other costs are payable relating to extending a lease?

On top of the lease extension price, you also have to pay:

• Your Legal fees
• Your Surveyor’s fees
• The freeholder’s reasonable legal and surveyor’s fees
• Stamp duty*
• Land Registry fees

*While stamp duty land tax applies to lease extensions, it’s unlikely that you’ll pay it. That’s because the rate is 0% on the first £125,000 of the lease extension premium. The majority of lease extensions come in well below this level of premium.

If you own more than one property and you are paying Stamp Duty on your lease extension you will be liable to pay the additional rates.

When should I extend my lease?

Ideally, you should be thinking about an extension when the lease has around 90 years left to run. Anything under 100 years would usually be flagged as a short lease. But the danger number is 80 years. If the term drops below 80 years – even by just one day – then it becomes much more expensive to extend your lease.

This is because something called ‘marriage value’ kicks in. The marriage value is the increase in the value of the flat once the lease has been extended, which can run to tens of thousands of pounds.

You’ll always pay a premium for adding the extra years to your lease. But if your lease has fallen below 80 years, you’ll have to pay 50% of the marriage value on top of the usual lease extension price which causes extensions under 80 years to be much more expensive.

What are the steps for extending my lease?

It completely depends on your individual circumstances and your freeholder whether you extend voluntarily or under the 1993 Act. However, in our experience, the majority of leaseholders do end up extending under the 1993 Act. The main position of proceeding down the statutory process is that it establishes clear deadlines at every stage so the freeholder cannot drag their feet.

Step 1: Take initial legal advice and instruct a solicitor.

Step 2: Hire a surveyor with expertise in lease extensions and knowledge of the local market. The surveyor will value the lease extension and figure out the price you should be paying.

Step 3: Make a formal offer. You do this by serving an official notice which sets out the price and any new terms to be included in the lease. Your solicitor will draft and serve this for you – you will need to sign the notice.

Step 4: If the landlord asks for a deposit, you’ll need to pay this within 14 days. The deposit is £250 or 10% of the proposed price, whichever is higher.

Step 5: The Landlord will serve a counter-notice which will include a counter offer. This is usually higher than they will eventually accept.

Step 6: Negotiations on the price. Negotiations are usually carried out between the leaseholder and freeholders surveyors and the calculations, etc are within their area of expertise.

Step 7: Whilst or after the price/premium has been agreed the freeholder’s solicitors will draft the lease extension and the terms will be reviewed and negotiated by your solicitor. Under the 1993 Act, you are entitled to a lease on the same terms as your existing lease with some allowance for modernisation.

Step 8: Once everything is agreed – completion and registration at the Land Registry. This is again all organised and handled by your solicitor.

If you cannot agree on the price or lease terms after 6 months, you can ask the Property Tribunal to determine it for you. Very few cases go to the Tribunal but making the application is often necessary to bring the freeholder to the “negotiation table”.

The Leasehold Reform, Housing and Urban Development Act of 1993 gives the leaseholder a right to extend their lease by a further 90 years once they have owned the property for 2 years, however, a buyer may take advantage of the Sellers period of ownership and avoid waiting for 2 years.

If you proceed with a voluntary lease extension then the process is likely to be set by the freeholders themselves. When agreeing to the terms of the lease extension you may be asked to cover the costs of the freeholder’s valuation. Once the premium and terms of the extension are agreed the process involves a lease extension deed being drafted, checked, negotiated and completed. After completion, your lease extension solicitors will also register the lease extension at Land Registry. If you have a mortgage over your property the lender’s consent will be required and a lease extension solicitor will be needed to act on the lender’s behalf.

If you proceed with a statutory lease extension then the process is more involved. Initially, a section 42 notice will be served on the freehold which notifies them that you are relying on your right to seek a lease extension. The section 42 notice will provide an opening offer on the premium payable for the extended term. The freeholders then have a period of two months to serve a counter-notice which will either admit or not admit your right to extend the lease and will either accept the offer made in the section 42 notice or propose a counter offer for a higher premium. There is then a period of 6 months to negotiate the premium and the terms of the new lease before a property tribunal application would need to be made. Once the premium and terms of the lease are agreed then the lease is completed and registered at Land Registry.

How long will it take to extend my lease?

From beginning to end, the statutory process normally takes between 6 and 12 months. Choosing a good solicitor – ideally, one who is a member of the Association of Lease Enfranchisement Practitioners – can speed things up considerably.

Do I need a solicitor to extend my lease?

Yes, you do. Even if you take the informal route and agree on the lease extension terms directly with the freeholder it is important to have a solicitor consider the lease to make sure no new or unreasonable terms are being added to the lease, etc. Also if you have a mortgage over your property they will need to be represented by a solicitor.

If you also choose to extend without taking valuation advice then you could end up paying over the odds for the lease extension.

If you don’t instruct professionals the worst case is that you could end up with an unsellable property because the new lease is onerous or isn’t dealt with correctly.

How can our lease extension solicitors help?

• Buying leasehold properties
• Preparing Deeds of covenant
• Dealing with Licences
• Supplementary lease work
• Landlords selling freehold to leaseholders

Why choose Osbornes Law when extending your lease?

Osbornes Law are founding member and approved lawyers of ALEP, The Association of Leasehold Enfranchisment Practitioners. This kitemark means that we are recognised as experts in lease extensions. We are also approved lawyer of ‘News on the Block’, which is another leading association representing the rights of leaseholders in London and England.

To find out how much will it cost you to extend your lease use our lease extension calculator or contact us and ask for Guy Osborn or Amber Larner-Bird.