If you own a leasehold property, getting a lease extension is one of the most pressing issues you’ll face. And yes, we know what you’re thinking – why worry about your lease for now, I’ll deal with it later. But the truth is, the length of your lease can have a huge impact on the value, mortgageability and future sale prospects of your property.
It’s not unusual for leaseholders to find out about the importance of lease extensions when they try to sell or remortgage their property. Unfortunately, by this point, a shorter lease may already have cut the value of your property and made it more expensive to extend.
This guide will walk you through everything you need to know about lease extensions in England and Wales, from how they work, to when you should consider doing one, the process involved and what you can expect to pay.
What Actually Is a Lease Extension?
A lease extension is the legal process that adds extra years to the time left on your lease.
When you buy a leasehold property, you’re not actually buying the land – you’re buying the right to live in that property for a fixed period. As that period gets shorter, the value of your property can start to drop.
Getting a lease extension gives you more time to own and enjoy your property, which makes it a lot more attractive to buyers and mortgage lenders.
Most lease extension for flat owners in England and Wales add 90 years to the existing lease and swap out any ground rent obligations for a peppercorn (essentially zero).
For example:
- If your flat has 75 years left on the lease, you’ll now have 165 years.
- And any ground rent obligations will typically get nixed in the process.
Why Do You Really Need a Lease Extension?
Too many homeowners underestimate the impact of a dwindling lease.
Having a short lease can:
Affect the Value of Your Property
The fewer years left on your lease, the less appealing your property will be to buyers.
When looking for a new place, potential buyers will often take into account the future cost of extending the lease – which can wind up reducing the sale price.
Limit Mortgage Options
Most lenders have a minimum lease requirement.
Some will flat out refuse to lend to properties with short leases while others will slap on tougher conditions.
This can seriously cut down on the number of potential buyers.
Make the Property Harder to Sell
Properties with longer leases tend to be easier to sell.
Buyers much prefer places with over 100 years left on the lease because it means they won’t have to think about extending the lease right away.
Remove Ground Rent Worries
Modern lease agreements sometimes have clauses that let ground rent go up and up.
A statutory lease extension usually wipes out any future ground rent payments.
When Should You Consider Getting a Lease Extension?
Honesty time – it’s usually a good idea to get one sooner rather than later.
One of the key milestones to keep an eye out for is when your lease falls below 80 years.
The 80-Year Rule of Thumb
Once your lease drops below 80 years, the cost of extending it can get a lot more expensive.
This is because of ‘marriage value’ – the increase in value your property gets from extending the lease, which you and the freeholder both have to pay for.
Many professionals advise getting a lease extension before your lease dips under 80 years.
General Guidance
- If you’ve got more than 100 years left on your lease – don’t worry, it’s probably fine.
- 85-100 years left – it’s a good idea to start thinking about your options.
- 80-85 years left – now might be a good time to start looking into the process.
- Under 80 years – pretty soon you’ll be looking at a lot bigger costs.
- Under 70 years – selling and remortgaging will get a lot tougher.
Who Can Apply for a Statutory Lease Extension?
Most flat owners can apply if:
- The property is held under a long lease.
- The original lease was granted for more than 21 years.
- You’ve owned the property for at least 2 years.
There are some exceptions, so it’s best to get a specialist to have a look.
Recent leasehold reform proposals may shake things up in the future, so it’s worth getting up to speed with the latest advice.
Informal vs Statutory Lease Extensions
You’ve got two main options to choose from.
Going the Informal Route
You can try negotiating an informal lease extension directly with the freeholder.
Pros include:
- Can be faster.
- Can be more flexible.
- May be a bit cheaper for professionals.
Cons include:
- The freeholder can still say no.
- Any ground rent is still stuck on the lease.
- You don’t get the same level of legal protection.
Going the Statutory Route
A statutory extension follows a proper, formal legal process set out in law.
The benefits include:
- You get an extra 90 years on your lease.
- Your ground rent gets knocked down to zero.
- You get proper legal rights and protections.
- You can appeal if you can’t agree on terms.
It’s a bit longer, but many leaseholders think the extra peace of mind is worth it.
The Lease Extension Process
Step 1: Get a Specialist Surveyor On Board
Usually the first step is getting a proper lease extension valuation from a qualified surveyor who specialises in leasehold enfranchisement.
They can give you a rough idea of:
- What the freeholder is likely to ask for as a premium.
- What terms to aim for in negotiations.
- Any likely costs you’ll incur.
- What impact it’ll have on the value of your property.
This valuation can save you a fortune in the long run.
Step 2: Get Your Solicitor on Speed DialLease extension law can be a real minefield to navigate.
A good solicitor specialising in leasehold property will be able to:
- Take a close look at your lease.
- Check whether you qualify for a lease extension.
- Deal with service of notices.
- Negotiate on your behalf.
- Get all the legal paperwork sorted.
Step 3: Send a Formal Notice
When you’re looking for a statutory extension, your solicitor will usually send out a Section 42 Notice on the freeholder’s behalf.
This notice sets out the key details:
- The premium you’re prepared to pay.
- Some basic information about the property.
- Details of the lease.
- The grounds on which you’re making the claim.
Step 4: The Freeholder’s Response
The freeholder usually sends back a Counter-Notice.
This can either:
- Accept your offer and not propose any changes.
- Disagree that you’re eligible for a lease extension.
- Suggest a different set of terms.
- Try to push for a higher premium.
Step 5: Time to Negotiate
Surveyors acting for both sides then get together to try to agree on the premium and terms.
Most of the time, it’s possible to sort out a deal at this stage without resorting to the tribunal.
Step 6: Tribunal (If It Gets That Far)
But if you can’t come to an agreement, either side can apply to the First-tier Tribunal (Property Chamber).
The tribunal can then decide:
- How much premium to pay.
- What your new lease terms will be.
- Any other disputed issues.
Step 7: The Final Push
Once you’ve got an agreement in place, your solicitors will sort out the legal paperwork and register your new lease.
From that point on, the lease extension is fully in place.
How Much Does a Lease Extension Cost Anyways?
The cost of a lease extension varies wildly depending on all sorts of factors such as:
- How long is left on your current lease.
- What the property is worth.
- The ground rent you’re paying.
- Where the property is located.
- What the freeholder is asking for.
Typically speaking, you’ll have to pay out:
Lease Extension Premium
This is the fee you pay to the freeholder.
The premium can range from a few thousand to tens of thousands, depending on your specific circumstances.
Valuation Fees
You’ll usually have to pay a professional to value the property.
Legal Fees
You’ll typically have to pay your own solicitor’s fees, as well as your own surveyor’s fees.
Freeholder’s Costs
Under the statutory process, you’ll often end up paying the freeholder’s costs as well.
Can You Get an Extension Before Selling?
Yes, you can.
Lots of sellers find it makes sense to start the lease extension process before putting the property on the market.
This can:
- Give potential buyers more confidence in the property.
- Give the property a bit more value.
- Make it easier to get a mortgage.
- Speed up the sale when it comes to it.
Even better, sellers who’ve owned the property for more than two years can start the statutory process and then pass the benefit on to the buyer.
This means the buyer doesn’t have to wait two years before applying for an extension themselves.
Lease Reform
Leasehold reform is still a big topic of conversation in England and Wales.
The government has been trying to make lease extensions simpler and more affordable for leaseholders.
As the legislation is still evolving, make sure you get professional advice before relying on older guidance.
The rules today may change as reforms are implemented.
Common Mistakes to Avoid
Don’t Wait Too Long
The cost of an extension tends to go up the shorter the lease gets.
Delaying beyond 80 years can be very expensive.
Don’t Accept the First Offer
Freeholder proposals aren’t always the best option.
Get some independent valuation advice first.
Don’t Use the Wrong Advisers
Lease enfranchisement is a specialist area of property law.
Choose solicitors and surveyors who know what they’re doing.
Don’t Ignore Ground Rent Terms
Some informal lease extensions may retain or increase ground rent obligations.
Review the long-term implications before agreeing to any new terms.
When Do You Need to Look into a Lease Extension?
You may want to get some professional advice if:
- Your lease has got less than 90 years left on it.
- You’re planning to sell in the next few years.
- You’re thinking of remortgaging.
- Ground rent is going up a lot.
- Potential buyers are raising concerns about the lease term.
- You’re getting close to the 80-year threshold.
A lease extension can be a really good idea to protect the value of your property, improve your mortgage options and make future sales easier. While the process may seem complicated, getting the right advice early on can make a real difference.
If you’ve got a lease that’s getting close to the 80-year mark, it’s probably worth exploring your options sooner rather than later.
Actingearly can help keep costs down, preserve the value of your property and give you greater long-term security in your home.
By understanding how lease extensions work and getting the right advice, you can make informed decisions that will protect your property investment for years to come.