How To Extend Your Lease
Written by The Landlord on 05 Feb 2008
This is probably the one single question I get asked the most frequently- “how do I extend a lease on my property?” The thing with leases is that they can significantly affect the value of a property. The sooner the lease is due to expire, the less the property is worth and the more expensive it can be to extend. Buyers usually look for properties that has a minimum of 95 years; anything below may scare away potential buyers.
Before I conitnue, i’d just like to apologise for the really horrible “extension” analogy of the ladder image. I seriously couldn’t think of anything more suitable :( If anyone has a better suggestion for an image, please let me know. Right, back to business…
A flat with a lease of 100 years is worth roughly the same as a property on a freehold. An apartment on a lease of 60 years, could be valued at approximately 60 per cent of the freehold price. Point being, leases are a big deal.
What is a lease?
A lease simply means the right to occupy a property (usually a flat) for a period, which is generally set at 99 or 125 years. At the end of this time, although you can stay on as a tenant, the freeholder will own your property. For information on freehold and leasehold properties, you can go to my Freehold And Leasehold article.
Here’s a quick guide on how you can extend your lease on your leasehold property.
When Should I consider extending my lease?
If a lease has less than 80 years unexpired when you seek to extend it then as part of the price you will have to pay what is known as a marriage value to the freeholder. This could be significant. It is a key reason why you should consider extending sooner rather than later.
You may encounter difficulties if you want to sell your flat if the unexpired term is less than is regarded as mortgagable by most lenders. Different lenders have different criteria but they are generally looking for an unexpired term of at least 60 years.
1) Check your lease
The lease runs from the date it was drawn up, not when it was purchased and not the date when the lease was granted. For example, a 99 year lease that was purchased in 2005, 15 years after the lease was actually drawn up (1990), will expire in 2089 – leaving 82 years to run.
2) Check Eligibility
You can only extend a lease for a property that you have own for at least 2 years; you have a right to extend your lease for an additional 90 years at a peppercorn (zero) ground rent. It doesn’t matter if you haven’t been in occupation. The original lease needs to be long (over 21 years) and it should be residential, as opposed to commercial use.
The law is that you cannot compel a lease extension until you have owned the proeprty for 2 years but that doesn’t stop the freeholder agreeing to give you one in the meantime – but if the landlord is canny (or an ass, depends which way you looka t it), he/she will ask a bit more to reflect the fact that you do not have a right to require it!
However, there are exceptions. You can’t force the freeholder to extend a lease if:
- The majority of the leaseholders have applied to obtain the freehold
- Your lease has already ended
- You have sublet your home on a lease of at least 21 years
- The lease was originally granted for less than 21 years
- The freeholder is a charitable housing trust, the National Trust, the Crown (although they may agree), or the property is in a cathedral precinct
- If your freeholder wants to demolish or redevelop the property (in which case you would be entitled to compensation).
3) Solicitor instruction
After insuring that you are eligible for getting an extension, you should contact a solicitor. A solicitor will handle all the legal documentations for extending your lease. The solicitor will start the process by serving an Initial Notice on the landlord, which will offer a premium for the lease extension. Some of the stages in the process of extending a lease have strict time limits. It is very important to instruct a solicitor who is familiar with the legislation. It’s best to get a recommended solicitor that has a strong history in this specific field. Alternatively, contact the Law Society for a recommendation and get a written quote first.
4) Valuation of lease extention
Firstly, a valuer, usually a chartered surveyor, is needed to put a value on the lease extension. I say “needed” because it would be extremely unwise not to have a valuer specialising in this field. He/she will use the valuation formula in the Leasehold Reform Housing and Urban Development Act 1993, as amended. Contact the Royal Institution of Chartered Surveyors for a list of local surveyors who specialise in lease extensions. It’s best to get a quote in writing first.
Most surveyors will charge a fixed fee to prepare the report. This fee should cover the initial inspection of the property, reading the lease and making all the calculations.
There are extra charges if the surveyor is asked to negotiate with the landlord or their agent or for any further work required if the valuation cannot be agreed.
5) Dealing with the freeholder
The owner of the freehold will be given a minimum of two months in which to respond to an offer and if he/she does not, then action can be taken by applying to the County Court for an order that the lease extension be granted on the same terms set out in the initial notice.
Usually the Counter Notice is served in time and a period of negotiation follows between the parties or their respective surveyors.
You should also remember that whilst the law will ultimately be on your side when extending a lease, if a freeholder wants to be difficult he/she can drag the whole process out for ages. The freeholder can still suggest a high figure on the basis that it will take you quite a bit of time and money to challenge it.
6) Valuation Problems
If an agreement is not made on the valuation then the deal could end up in the Leasehold Valuation Tribuna. However, that is quite unusual.
An application to the Leasehold Valuation Tribunal must be made by the flat owner (i.e. the lessee) no later than six months from receipt of a valid counter notice, failing which, if the premium cannot be agreed within the six month window, the initial notice is deemed withdrawn. This means that the lessee will have to pay the landlord’s reasonable legal and surveyor’s fees in addition to his/her own costs and wait for a further 12 months before being able to make a fresh claim under the Act.
This will be costly for the lessee, especially if waiting a year results in the lease term dropping below 80 years! If the applicant meets the criteria by law the freeholder cannot prevent extention of the lease.
Once the Initial Notice is served on the freeholder, then the applicant will be responsible for the reasonable valuation and conveyancing costs. The Notice is also important in setting the valuation date.
7) Further Entitlements
Under the Act the applicant is entitled to a further 90 years on your lease with no ground rent payable on the original term or extension– that is incorporated within the cost of extending. However, there will still be a service charge under the terms of the lease.
8.) How Much Will It Cost?
How much the extension is worth and calculating how much you will have to pay is difficult to estimate accurately. The value consists of three main amounts. The first two are to compensate the landlord, for loss of ground rent during the rest of the existing term of the lease, and for not receiving possession of the property at the end of the term.
Thirdly, as already mentioned, where the lease has less than 80 years to go, there is what’s known as a ‘marriage value’, which is arrived at by deducting the value of the property before the extension from the value afterwards, plus the value of the landlord’s interest.
The Leasehold Advisory Service gives an example of a flat with a 68 year unexpired lease, on a ground rent of £50 pa, with a current value of £150k, and an improved value £165k. An extension of 90 years is likely to cost £8,250. But the same property, on a lease with only 35 years to run, could set you back a whopping £55,368. However, if the current lease is 95 years (and, therefore, attracts no ‘marriage value’) the cost of an extension would be only around £734.
It’s important to note that the leaseholder is liable for both parties’ legal and valuation costs, unless the matter ends up at the Leasehold Advisory Service, who may apportion the costs differently.
Although it may be an expensive business, remember that you are adding value to your property, and, in addition, you will no longer have to pay ground rent.
9) How Long Does it Take
Subject to how efficient you are, plus your freeholder, his solicitor, your solicitor and your surveyor, this whole process could take from 3 -12 months – unless of course it lands up in court because you cannot agree values. However, there are legal timelines in place to prevent the process from dragging on.
Please note
This is just a rough guideline to the process of extending a lease; each case may vary depending on individual circumstances. On that note, Happy lease extending, people…
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56 Comments - join the conversation...
The vendor has already given the freeholder the notice, and the Freeholder has just come back with a price over 10k to extend the lease for another 90 years. Our vendor got a survey that came in at 6k for it. He is now negociating a lower price for it. Does anyone know if it is possible for the vendor to get it for a lower price similar to the survey? And how long it could take? as out mortgage offer expires in few months!!
We are buying the property for 160k and the lease has 76 years left unexpired.
Please help...as the estate agent, solicitors and vendors are not giving us any info!!!
Laura
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Are you planning to stay there for the next 76 years? If not then I would not bother - seriously.
I'm sure the flat is lovely BUT bear in mind the issues with negative equity especially with flats at the moment. Is it worth spending an extra 6k-10k on an item that is not going to add real intrinsic value to the flat itself. I really would urge caution. How much is the ground rent?
Jools
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So £150/year x 90 years = £13500 plus you still have to pay the £150/year charge?
Is 10k reasonable? I dont think so but as you say - London has it's own rules! If your solicitors are not helping I would change them - after all You are paying for their advice and services!
How about offering 4k and then negotiate? Afterall - if you pull out the vendor will have all the hassle of re-advertising. Also put him in your position. If its going to be hard for you to sell with a short lease surely it is the same for him? Or buy another 25 years to make it 100.
Buyers Market - negotiate hard. Estate agents are evil incarnate so make them work hard for you. They want the highest commision so will do bugger all to negotiate on your behalf unless they fear a loss of sale!
Sorry it's a bit rambling!
Jools
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laura
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This purchase will be my daughter's first home and I'd prefer if she could afford freehold. Have to say I'm now put off leasehold properties despite her disappointment.
I'm going to see if the vendor will pay the cost of extending the lease or failing that offer a whole lot less for the property.
We may have lost the admin fee for the mortgage application but that's a whole lot better than buying a leasehold property which will become worthless and unsellable.
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We are looking in an expensive part of London and are already at the top of our budget so any hidden costs in form of a lease extension would be a real blow - but the flat is nice. Flat is valued at 395k. Any thoughts?
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94 years is a very good lease. Anything below 80 is worryiny..until then you have nothing to worry about. However-what I would double check is the leasehold information-especailly service charge. We were meant to buy a flat in Clapham (Lambeth Borough) all was going fine until they decided to put brand new lifts in the building and flat ptich the roof-it was going to cost us around 12,000-taken in monthly instalments out of or service charge. We had a lucky escape!!! This is common with ex council properties as they r usually stillowned by the council and have certain regulations they have to abide-and you have no choice in this matter!!! So just get your solicitor to check there is no scheduled wrk to be done???
All the best.
Laura
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I have inhereted, form my deceased Mother, a 2 bed flat with a 53 year lease, which i would like to sell.
Do i qualify for a lease extension, as i havent owned the property for 2 years or does the fact my Mother had owned it for over 2 years mean this requirement doesnt apply?
Also, should i just say 'whatever' and put it on the market and see what happens with the price as i dont think i can afford the cost of extending lease anyway ?
Any advice would be very much appreciated.
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I would be grateful of anyone's advice in respect of my current predicament!!
We are interested in purchasing a leashold maisonette with a 55 year lease for 65k, the property is a re-possession and I don't know who owns the freehold, the estate agents have not provided any further information in respect of hoe to go about extending the lease.
How do I go about finding out how much the lease extension is likely to be before I exchange contracts, is the mortgage company likely to be willing to contact the freeholder and request this info on my behalf, ideally I would like to extend the lease and purchase the flat at the same time but do not know if this would be possible considering the added anomalies.
Any thoughts would be appreciated
Many thanks
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I'm afraid u r out of luck..there is no possibility of u extending the lease with completion-for a start-with a repossession u have 28 days to complete...extending a lease can take up to a year to do as it is a very long process-that includes both u and the freeholder getting surveys for the lease extension- and a lot of negoviatong back and forward which take time. Also u r not legally allowed to extend the lease as u must have either owned the property for 2 years or the vendor must have started off the process and transferred it you-which is not going to happen bring a repossession- I know it's tough-but I would leave it and find something else..as this is going to be extremely hard work in such a limited time when u don't even know who the freeholder is....
Good luck,
laura
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Many thanks for your prompt response, I've just had another thought on the matter, could I make it a condition of sale that the bank/mortgage company increase the lease to 99 years??
Many thanks for taking the time out to respond to me!!
Nicky
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I'm not sure if I understand your question correctly-but the freeholder is the only person allowed to extend it to 99 years.. It's not really anything to do with the lender/anyone else?? If u really are serious about this-you need to find out who the freeholder is- we nearly bought a repossession-so I know what it's like, they can't give u any info-so do your own research ask neighbours/ other people with flats in same building.,, and then try and contact the freeholder directly- extending a lease Is big business tho-freeholder's know they have the upperhand-u need to do a lot of negociating,I know because we r facing this battle now!!! U need solicitors that know what they're doing too...and it's all gotta b registered with land registry...u either need to buy it now and extend lease in 2 years when u r legally permitted providing u know who the freeholder is.. Or my biggest advice is pull out... By extending the lease u r also liable for the freeholder's survey DNS legal costs...
Laura xx
Good luck
laura
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As first time-buyers we aren't in a position financially to buy anything of the size we need (one small child and another on the way) and this seemed like a good opportunity to start our way onto the property ladder.
Any thoughts, advice shared experience would be most welcome!
Many thanks,
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Once again many thanks for your comments, I am taking your advice and running!! The estate egants have confirmed that there will be no opportunity to extend the lease before completion so I will have to wait for at least 2 years and who knows what the freeholder is likely to want to extend it - I'm not brave enough to gamble with my hard earned cash - thank-you for making me see sense!!
Nicky
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Many thanks.
Chris
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I wonder if you can help me....we own (and rent out) a flat which has 80 years left on the lease (on 24 Dec, it will be 79 years). There are 5 flats in the building, 3 of which are owned (by leasehold) by the members of the same family - one member of this family also owns the freehold for the whole building. He is very old and so a friend of his has a Power of Attorney to make decisions on his behalf. Although I have tried to broach the subject of extension/freehold informally, the friend has said he doesn't want to do anything (it is not his place to do so, he says). So my dilemma is do I try and extend the lease now (though probably can't be done quick enough to get the benefit of the 80 year threshold) or, do I try and hope that one day I will be able to get my hands on part of the freehold (hoping that maybe the family agree or one of them sells and the new owners agree so we can force the sale). Thanks for your views!
23
I am a first time buyer. Ive just seen this beautiful flat and really want it. It is in a 3 floored block of flat, ex council. The lease is 62 years.
Would you know how much it would cost to extend the lease?
And do you need to live there for a certain perios of time to be able to extend it?
Thanks
Eliza
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What you are buying is a share of freehoold. It always has a lease as flat cannot go without one ( as you own part of building not a whole... plus in respect of english legal system you that would be very confusing and you won't get mortgage on it ).
By having share in freehold it means that you are partly owner of the land on which the building stands on. So basicly you ware the land owner so that the lease thing doesn't affect you and you don't have to pay to get it extend.
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Thanks!
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I have recently written to the freeholder of my flat, there are 67 years left on the lease. Her letter states and extension of 90 years costs £11,000 she is willing to offer me a discounted rate of £7000 plus legal fee's. After picking myself up off the floor I reread the letter and realised the extension of 90 years would take the lease to 157, this would cost £122.22 per year to extend, but her discounted rate increases the lease to 99, so only 32 years, which would actually cost £218.75 per year to extend, so this is not a discount she is offering but almost double the cost per year. Can you please help I really do not know what to do now and how to deal with this situation. The offer is open for 60 days.
Thanks
Charlotte
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I am looking for help before I go into something I’m sure of.
I am a first time buyer; I found this one bed flat with a reasonable price, share of freehold, with 73 years lease remaining.
Does anyone know how I can go about extend the lease before accepting it? Who am I to speak to? And who would I pay to?
Any help will be appreciated
Thank you.
33
I have been through a similar lease problem when we were about to purchase a house, what you have to do is, you have to get the vendor to apply for an extension on the lease because you cannot do this, as you have to own the property for 2 years before you can apply for this. They in turn will receive a sum for what this will cost you from the freeholder. Some freeholder will not extend the lease but ask you to buy the freehold, which can be quite expensive. Your solicitor will complete all the paperwork for you (at a fee of course) and if you decide to buy the freehold, the solicitor will then transfer this into your name on completion of purchase of property.
Your first port of call would be your estate agent telling them that you would like the vendor to apply for an extension on the lease. Once they have come back to you with the amount you will need to pay, then you can decide whether or not it is worth purchasing the property. You may also be able to use this as a bargaining tool with the vendor, saying you will proceed with the purchase on the condition "they extend the lease", it depends on how eager they are to sell as to whether they will agree to this. This however; did not work in our favour and the vendor refused to pay for the freehold and we were going to have to pay ourselves if we wanted it. Hope this has been on help to you.
Chris
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Thank you so much for this informations, now I know what to do.
Sam
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Thanks
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I need some advice. I want to buy a flat which has only 28 years left on the lease. Current value is £85000. How much would it cost me to renew a lease after I owned it for 2 years. Is it worth to buy a flat like that? Will I get in lots of trouble to renew a lease?It is an investment for me. Thanks for your help. Russel
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Thanks,
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Is there any way of lowering this cost? especially when the local agents are predicting around £10,000-£15,000 to actually extend the lease.
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How much would I be expected to pay on top of the £1,690 that would be paid to compensate for the loss of £10 a year?
Any idea the cost of surveyors fees for a valuation?
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It has 79 years left on the lease and I have had a viewing and they have asked how much it would cost to extend the lease.
I have asked the freeholder how much it will cost and he is getting back to me - I just wanted to know if anyone had a rough idea how much I am looking at?
The current value of my flat is £140k....
would really appreciate any help
Thanks
Steve
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Would it be wise to contact the freeholder first and discuss with them first? Then contact the solictor/surveyor
We would like to sell our property in 4 years.
46
I am buying a property at the moment, it is leashold, but myself and the other flat own a share of the freehold.
Our lease is 87 years and I was wondering, what is the process to renew it? How much does it generally cost in these situations, if say we wanted to extend it back to 99 years, or to 125 years?
Thanks
47
I posted 4 posts up. I have decided that I need to extend my lease and have started the process so this info may be of help to someone. I paid £240 to have a surveyor to come and value the flat for the lease extension purposes. He then gave me the lowest considered settlement of £5,650 and the highest premium for extending the lease of £6,450. He suggested that he offered the freeholder the lowest ammount. (I have 72 years left on the lease and the extension would add another 90 years to this. I pay £10 a year peppercorn rent and the flat was valued by an estate agent at £150,000)
Should the freeholder agree to this, it will have to go to her solicitor and I will also have to get a solicitor who will have to change the lease. I have been quoted £600 + VAT for my solicitor to sort the lease out and as i am extending the lease, I will also have to pay the costs of her surveyors doing a valuation and working out their estimation of what premium i would have to pay (exactly the same as my surveyors have done, so it may cost another £600+ depending on how much her surveyors charge. if she does not agree to my offer, I will then have to pay a further £200 for the surveyor to pass on information to my solicitor to try and come to an agreement.
Its all so expensive - I wish I'd been advised by the bank years ago that I should be extending the lease before 80 years left were up and then I wouldnt have to pay this 'marriage value' I have been strongly advised though to extend the lease now as leaving it will be a lot more expensive in the long run.
Hope this has been of some help.
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I am going through the process of a lease extension and no-one told me that as well as the freeholder's valuation fees I would have to pay their solicitor to draw up a new lease. This has been set at £600 + VAT. Is that reasonable? Also - will there be land registry fees to pay as well?
50
I have few questions regarding this topic. I am not a resident of UK, however my father and his brother own a flat in London. 2 of their unmarried elderly sisters live in it.
My father and uncle are named as proprietors in Register Of Title document. The edition date on it is 28.03.2006.
Property Register section dates 12.01.2006 as "lessor's title is registerd", Names of Parties involved and "Term : 125 years from 24 June 2005". All these particulars indicate that the flat was leased in 2005. The flat has been in our possession since early 1990's. My father expired in 1996.
My questions are that
1> how can it have been leased in 2005 with my father's name?
2> in year 2002 i remember my uncle asking me to give him our father's death certificate and succession and heirship certificates but then later he only took a utility bill which was still being issued in my late father's name in our native country. SO can he have got property leased without my father being present at that time?
3>the present lease is joint proprietors (meaning it cannot get transfered to surviving heirs) , however i specifically remmeber my uncles telling me that my father's share needs to be transfered in his wife and kids names. Can he have got the new lease with different type of propritorship?
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i wondered if anyone can shed some light on my particular case & whether i should renew my lease now or wait a few years thus building up some funds from the flats income....
1. My lease was issued in May 1992, worryingly SOLICITORS can't agree as to whether i have 80 or 79 years LEFT, can someone please give me an exact answer?
2. The Freehold is owned by a housing association and although i pay a service charge i DO NOT pay a ground rent, therefore i don't think the "peppercorn rent" scenario applies to me, so in turn does "marriage Value" still apply?
3. taking into consideration the lack of peppercorn rent, if i do have 80 years left, am i still better off renewing now before it goes down to 79 in May?
4. If i have 79 years left, will it make much difference in cost if i leave it until i have say 77 or 76 years left?
I would appreciate any advice, i'm finding it very difficult to get any straight answers from any solicitors & i'm very reluctant to part with any money for surveys until i am sure the solicitor i am instructing knows what they are doing, after all i can't have 79 & 80 years left!
Please help!
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Suicidal move?
Your comments are appreciated.
54
It depends. The most important factor is the asking price. The rather opaque rules on marriage value, which kick in when the flat's got under 80 years remaining on the lease effectively give the freeholder a share of the value of the flat. The forumla is very complex, but use a rule of thumb of them owning 69/80ths and you owning 11/80ths. Or about 12.5% of the market value of an equivelent flat with a long lease.
So my rule of thumb would say if the flat is on offer for around 12% of normal market value then I might be interested. I'd have two choices:
1 - Rent it out for twelve years and then say goodbye to it. Will you recoup your investment? Many leases I've seen have special clauses applying to the final seven years of the lease. You're obligated to ensure you hand the flat back in a fully decorated and maintained condition. And you may find it hard to recoup the cost of this work back from future rental earnings.
2 - Use Leasehold Enfranchisement to get the lease extended. This won't be cheap. You'll pay the freeholder for their value in your lease and solicitors and surveyors costs for yor AND the freeholder. And you might need to pay their costs to attend a Freehold Valuation Tribunal. In fact with 88% of the market value at stake, I'm pretty sure they'd drag you to the tribunal.
Hope this helps.
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In this instance, I think it's safer to buy land without planning permission !
Kind regards
56
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