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Lease extension

The leasehold Reform, Housing and Urban Development Act 1993, gives the leaseholder, also known as the tenant or lessee, the right to extend their lease by a further 90 years. Flats with shorter leases can be significantly less valuable, difficult to sell and harder to secure a mortgage against. It is especially important for leaseholders to think about extending their leasehold when the unexpired lease term is approaching 80 years.

Key things for leaseholders to consider

  • You can extend your lease at any time.
  • You have the right to extend your lease by 90 years.
  • If you have less than 80 years on your lease, you need to act now.
  • If you’re a leaseholder, view our FAQs >

If you’re a freeholder, see our handy guide >

We advise on lease extensions, for both leaseholders and freeholders. Our recognised and recommended regional firm has a multi-disciplined team that takes pride in its work and in delivering the highest standard of service by building strong working partnerships based on trust, efficiency and excellent communication.

We have an experienced team of RICS registered valuers specialising in valuations for lease extensions who operate throughout London, Buckinghamshire, Berkshire, Surrey, Hampshire, Oxfordshire and Hertfordshire.

For guidance on your individual options, please contact us.
Fill in our simple enquiry form or call us on 01628 771221

 

A guide for leaseholders

Extending your lease can be a complex process, so ensuring you have the right legal and valuation advice is imperative. Below we’ve included answers to some of the most common questions, to help give you a better understanding.

 


 

FAQs for leaseholders

A lease extension gives the leaseholder (also known as the tenant or lessee) the right to extend their flat’s lease by a further 90 years. The freeholder (also known as the landlord) is legally obligated to comply with this request. This is enabled by The Leasehold Reform Housing and Urban Development Act 1993 and the Commonhold and Leasehold Reform Act 2002.

The leaseholder is legally entitled to a lease extension of 90 additional years and for the ground rent to be removed. The fundamental issue to be agreed on is how much this should cost.

To qualify, the leaseholder must have owned the property for at least 2 years, and the lease must have an original term of at least 21 years. You do not have to have lived in the flat at any time.

Yes. Flats with shorter leases can be significantly less valuable, depending on how long is left on the lease. It is more difficult to sell and harder to secure a mortgage due to their reduced value. Most lenders require at least 70-75 years remaining, with some requiring in excess of 85. This will affect you, as a leaseholder, if you are looking to sell you property. If the lease has reduced in length, below 70-80 years, you are restricting the market to purchasers not requiring mortgages (cash buyers) who will likely require a discount from your expectations.

So the longer you put off extending your lease:

  • The flat will become less valuable
  • The flat will become increasingly difficult to sell
  • The cost of a lease extension will continue to increase

The simple answer is that there is no better time than now. The process only becomes more expensive as the lease shortens. However, a significant milestone is when the lease falls below 80 years. Once this occurs the cost to extend incorporates something called ‘Marriage Value’. This can increase the premium substantially. All leaseholders should be wary of this event and ensure action is taken well in advance.

Your lease will be extended by 90 years on top of the remaining term. For example, if you have 70 years left on your lease, you will be given a new lease of 160 years.

The price depends on several variables, such as:

  • The value of the flat
  • The ground rent payments
  • The length of the current lease
  • Negotiations between the leaseholder and the freeholder

You will need a specialist Surveyor to undertake a valuation of your property and determine the likely extension premium. If you are extending the lease on a flat, you should talk to other residents in the building who have extended their leases as this can be a useful guide.

Other costs to factor in include:

  • Legal fees – the cost of hiring a solicitor.
  • Valuation fees – the cost of the surveyor’s report.
  • Stamp duty – this applies to lease extensions in the same way as any other home purchase.
  • The freeholder’s fees – you’ll need to cover the freeholder’s “reasonable” legal costs and valuation fees. Importantly, this does not include the freeholders’ costs for negotiating.

The most common way of covering the costs is to extend your mortgage. Most lenders will be happy to do this if you have sufficient equity, as it increases the value of their security.

  • Find a solicitor and surveyor. The Leasehold Advisory Service and the Association of Leasehold Enfranchisement Practitioners have lists of solicitors who are specialists in the field. Costs can vary so it’s important to do your research beforehand – check whether the fee is fixed or an estimate.
  • Obtain a valuation of the premium. You will need a surveyor to value your property and the likely premium. The cost of the valuation can vary depending on the value of your property. Call Kempton Carr Croft in order to receive a formal quote.
  • Initiate negotiations. Once you have read your surveyor’s report, you can start negotiating with your landlord. This can be done informally to start, as it can save on some of the fees involved. If you do not make progress, or your lease is approaching 80 years, you should start the process formally with a Section 42 Notice. The Section 42 Notice claims your right to a 90-year lease extension without a ground rent, and offers your landlord a premium.
  • Your landlord will then serve a Counter Notice, which will include their counter premium proposal. This must be served within two months from the date you served your Section 42 Notice.
  • Once the Counter Notice has been served, negotiations will take place between the surveyors of the two parties. If all goes well and both parties can agree on the premium, the new lease form will be agreed by the solicitors and completed.
  • If the surveyors are unable to agree on a premium, you can apply to the First-Tier Tribunal to have the matter settled. The application must be made within six months of when the freeholder’s counter notice was due. Once you apply, you will be notified of the hearing date and timescales for producing reports. Your surveyor and solicitor will work together in order to submit any reports and attend the tribunal on your behalf, if necessary. The Tribunal will then consider both parties’ evidence and determine the premium.

On average, the process could take between six to twelve months. If an informal agreement can be made with cooperation from the freeholder this can be reduced.

A Section 42 Notice is the formal notice which triggers the statutory lease extension process. This is sent by your solicitor to your freeholder. The Notice should be served with proof of delivery so the serving of the Notice cannot be disputed.

 

Get in touch today to discuss your individual options >

 

FAQs for freeholders

The freeholder (also known as the landlord), is legally obligated under The Leasehold Reform Housing & Urban Development Act 1993 and the Commonhold & Leasehold Reform Act 2002 to comply with a leaseholder’s request to extend their lease by an extra 90 years, without a ground rent. This is dependent on three factors:

  • The property must be a flat
  • The leaseholder has owned their flat for at least 2 years
  • The lease has an original term of at least 21 years

The leaseholder should initiate negotiations with the freeholder once their surveyor has valued the property and calculated the likely premium. This can be done informally to start, however if no progress is made, then the leaseholder can issue a Section 42 Notice.

The freeholder then responds with a Counter-Notice which will include their counter premium proposal which must be served within 2 months from the date of the Section 42 Notice. Negotiations will then begin between the surveyors of the two parties.

If the surveyors of the two parties are unable to agree on a premium then either party can legally apply after 2 months from the freeholder’s issue of the Counter Notice or within six months of the Counter-Notice, to the Leasehold Valuation Tribunal (LVT) for an independent settlement of matters.

Once the Section 42 Notice has been served, the freeholder has the right to request evidence of the leaseholder’s title to the flat and their period of ownership. If this is not supplied by the leaseholder within 21 days then the Notice of Claim can be withdrawn, and the leaseholder must pay any “reasonable” costs and valuation fees incurred by the freeholder.

Freeholders can appoint their own specialist chartered surveyor to inspect the leaseholder’s flat for valuation and calculate the likely premium. At this stage, the freeholder requests a 10% deposit of the initial offer price set out in the Notice of Claim from the leaseholder, payable to the freeholder within 14 days of the request being made.

Even after an application for a lease extension has been submitted, the freeholder still maintains the right to sell their freehold. This will subject the new purchaser to any existing applications for a lease extension, if they have registered their Notice of Claim with the Land Registry. This means any application for a lease extension will continue as though the new owner had originally received the Section 42 Notice.

If a freeholder owns a property with a lease of less than 5 years from the service date of the notice, then they can claim the right of redevelopment against the leaseholder’s request for an extension. In this circumstance, the landlord has to prove indefinitely that he intends to demolish and redevelop the building, therefore voiding the leaseholder’s extension claim.

In addition to this, the landlord has the right to repossess the flat for purposes of redevelopment, once the existing lease has reached the end of its term. This right is subject to an application to the courts as well as compensating the existing leaseholder for the full value of the 90 years that remains on the lease.

Under the Leasehold Reform Housing & Urban Development Act 1993 and the Commonhold & Leasehold Reform Act, a leaseholder legally qualifies to extend their lease, provided the below qualifications are met:

  • The property is a flat
  • The leaseholder has owned the property for at least 2 years
  • The lease has an original term of at least 21 years

As long as the leaseholder requesting a leasehold extension meets the above criteria, they have the legal right to proceed with initiating negotiations.

A lease extension can be challenged. However, if an agreement of terms is not finalised by the surveyors of both parties, then the issue can be taken to a First Tier Tribunal hearing by either party’s surveyor, to be settled independently.

If the leaseholder begins the formal statutory lease extension process by issuing a Section 42 Notice, then they are responsible for costs incurred by the freeholder during the claims process, from the date of the Notice of Claim. These include the freeholder’s valuation of the property, the legal costs of drawing up a new lease, and any costs from the original claim of the lease extension. This will also include the premium payable to extend a leasehold. The leaseholder will not pay for any legal costs for negotiating the price.

If the leaseholder and the freeholder enter informal negotiations regarding a leasehold extension, each party is liable for their own individual costs incurred, but the payment of the landlord’s costs may form part of these negotiations.

If the surveyors of the two parties cannot agree on a premium, each party will be liable for their own costs of taking the claim to a First-Tier Tribunal where the issue will be independently determined.

If a leaseholder enters statutory proceedings, the freeholder does not have the right to charge a fee, as the leaseholder has a legal right to extend their leasehold. Leaseholders are however, obliged to pay the landlord a premium for the lease extension, which will be determined by specialist surveyors of both parties, as well as paying any reasonable costs incurred by the freeholder.

If the leaseholder and freeholder initiate negotiations, before issuing the Section 42 Notice, the freeholder can put forward their own lease terms, which may include charging the leaseholder fees for requesting a lease extension. The landlord is however under no obligation to enter into informal negotiations and may offer a new lease on different terms; such as a lease term of less than the 90 year extension provided by statute or at an increased ground rent.

The landlord is under no obligation to enter into informal negotiations and if terms cannot be agreed on this basis the leaseholder does not have recourse to the Tribunal and must therefore commence the formal statutory process.

 


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