Lease Extension Knowledge Base
Understanding Lease Extensions: Why They Matter
As a leaseholder, the number of years remaining on your lease is a critical factor affecting your property’s value and marketability. If your lease is dropping below 90 years, extending it becomes increasingly important to:
- Protect your property’s value from depreciation
- Enhance marketability for potential buyers
- Improve mortgage options as lenders prefer longer leases
- Secure your long-term investment in the property
Once a lease falls below 80 years, the cost of extending increases significantly due to what’s known as “marriage value” – a legal concept that represents the increase in property value resulting from the lease extension, which must be shared with the freeholder.
The Lease Extension Process Explained
Statutory Route (Under the Leasehold Reform, Housing and Urban Development Act 1993)
Qualifying leaseholders have the legal right to extend their lease by 90 years (for flats) or 50 years (for houses) and reduce ground rent to zero. To qualify, you must:
- Have owned the property for at least 2 years
- Have a lease that was originally granted for more than 21 years
The statutory process involves:
- Initial Notice: Serving a formal Section 42 notice on the freeholder
- Counter-Notice: The freeholder responds with their proposed premium
- Negotiation: Both parties’ valuers negotiate the final premium
- Agreement or Tribunal: If negotiations fail, the case proceeds to the First-tier Tribunal
- Completion: New lease is granted once terms are agreed
Informal Route
You may also approach your freeholder directly to negotiate a lease extension outside the statutory process. While potentially faster, this approach lacks statutory protections and might result in:
- Less favorable terms
- Continued or increased ground rent
- Fewer years added to the lease
How Our Lease Extension Calculator Works
Our calculator provides an estimate based on three key components that determine lease extension premiums:
1. Ground Rent Loss
This compensates the freeholder for future ground rent they will no longer receive. The calculation uses:
- Your current annual ground rent
- Years remaining on the lease
- A capitalization rate (typically 5-7%)
2. Reversionary Interest
This represents the freeholder’s right to take back possession of the property when the lease expires. The calculation considers:
- The property’s current value
- Years remaining on the lease
- A deferment rate (typically 4.75-5.25% for houses, 5-6% for flats)
3. Marriage Value
Applicable when leases have less than 80 years remaining, this represents the increase in the property’s value resulting from the lease extension. The calculation includes:
- The property’s value before extension
- The property’s value after extension
- The share of this increase (50%) that goes to the freeholder
Factors Affecting Lease Extension Costs
Several factors can significantly impact your lease extension premium:
Lease Length Remaining
- Over 80 years: Lower premiums, no marriage value
- Under 80 years: Higher premiums due to marriage value
- Under 60 years: Substantially higher premiums
- Under 30 years: Extremely high premiums
Ground Rent Terms
- Peppercorn (nominal) rent: Minimal impact on premium
- Fixed ground rent: Moderate impact depending on amount
- Escalating ground rent: Significant impact, especially with doubling clauses
Property Value
Higher-value properties typically face higher extension costs, as the calculations are directly linked to property value.
Freeholder’s Approach
Some freeholders are more reasonable than others. Institutional freeholders often follow standard valuation methods, while individual freeholders may vary in their approach.
Beyond the Calculator: Professional Valuation
While our calculator provides a useful estimate, several factors may affect your actual premium:
- Property-specific factors not captured in standard calculations
- Local market conditions affecting property values
- Freeholder’s valuation approach and negotiation stance
- Tribunal precedents relevant to your property type and location
For this reason, we recommend obtaining a professional valuation from a specialist surveyor with experience in lease extensions in your area.
Legal Assistance With Lease Extensions
Connaught Law provides comprehensive support throughout the lease extension process:
Initial Assessment
- Determining your eligibility for a statutory lease extension
- Reviewing your existing lease for potential issues
- Advising on the most suitable approach for your circumstances
- Providing a realistic timeframe and cost estimate
Statutory Process Management
- Preparing and serving the initial Section 42 notice
- Checking and responding to the freeholder’s counter-notice
- Coordinating with your valuer during negotiations
- Representing you at the First-tier Tribunal if necessary
- Completing the lease extension with the Land Registry
Premium Negotiation
Our solicitors work closely with experienced valuers to:
- Challenge unreasonable demands from freeholders
- Negotiate favorable terms within the statutory framework
- Achieve the lowest possible premium
- Ensure lease terms are fair and compliant with regulations
Frequently Asked Questions
Can you help reduce the premium quoted by my freeholder?
Yes. We specialize in negotiating lease extensions, aiming to reduce the premium payable to your landlord. Our solicitors work closely with professional surveyors, ensuring that you pay a fair market rate rather than an inflated one.
Do you represent clients at Leasehold Valuation Tribunals?
Yes. If an agreement cannot be reached amicably, Connaught Law is fully equipped to represent you at a First-tier Tribunal (Property Chamber). Our solicitors have a strong track record in achieving favorable outcomes in lease extension disputes.
How long does a lease extension typically take?
The statutory process typically takes 3-6 months if negotiations proceed smoothly. If the case goes to Tribunal, it may take 9-12 months. Informal agreements can sometimes be completed more quickly.
What are your fees for lease extension work?
Our pricing is transparent and competitive. While costs depend on the complexity of your case, we provide a clear fee structure at the outset. Your initial consultation is provided without obligation, giving you a clear understanding before committing.
Should I extend my lease now or wait until I sell?
Extending before selling is usually advantageous as:
- You can market the property at a higher value
- More buyers will be interested (especially those needing mortgages)
- You avoid the 2-year ownership requirement being passed to the buyer
- The cost will likely increase the longer you wait
Can my freeholder refuse to extend my lease?
Under the statutory route, freeholders cannot refuse a lease extension to qualifying leaseholders. They can only negotiate on the premium and challenge your eligibility if they believe you don’t qualify.
*Important Disclaimer
This calculator provides a general estimate only, based on industry standard calculations. The actual premium may vary significantly based on:
- The specific terms of your existing lease
- Your freeholder’s valuation methods
- Local property market conditions
- Recent tribunal decisions affecting valuation methods
The estimate should be used for initial budgeting purposes only. Before proceeding with a lease extension, we strongly recommend:
- Consulting with a specialist lease extension solicitor
- Obtaining a professional valuation from a surveyor experienced in lease extensions
- Assessing all potential costs beyond the premium (legal fees, valuation fees, Land Registry fees)
No action should be taken based solely on this calculator’s results without seeking professional advice tailored to your specific circumstances.
Next Steps: Get Professional Advice
For a personalized assessment of your lease extension options, contact our specialist lease extension team. We offer:
- A free initial consultation to discuss your situation
- Clear advice on the most cost-effective approach
- A transparent fee structure with no hidden costs
- Expert guidance throughout the process
Contact our lease extension specialists today on 0203 909 8399 or book a consultation online.