The value of a leasehold flat can be reduced significantly if the term of years remaining on the Lease is considered too short, with many Lenders reluctant to provide mortgages for flats with a shorter term. This can in turn affect the ability to mortgage (or re-mortgage as the case may be) or sell the flat in the future.    

The law provides Lease owners with the right to extend the term of their Lease, and this is documented by way of a ‘Deed of Variation’ or ‘Surrender and Re-grant’. The process of extending the Lease can be complex and the cost of any agreed premium can be thousands. Guidance from a solicitor can therefore be invaluable.

When should I extend my Lease?

Lease owners might wish to explore their options to extend their Lease when the term remaining reaches 80 – 90 years left to run. If the term drops below 80 years, then it can be become much more expensive to extend the Lease.

How can you extend your Lease?

There are two ways of extending a Lease; either by seeking a formal statutory extension or by informal negotiations with the freeholder / landlord.

Statutory Lease Extension

Under the Leasehold Reform Housing and Urban Development Act 1993 (“Act”), if a Lease owner has owned the flat for at least two years, they are entitled legally to an extension. Moreover, the Act provides Lease owners with a right to add 90 years to the Lease term and reduce their ground rent to nil if the set procedure is followed. The main benefit of extending under the Act is that it establishes clear deadlines at every stage and so the freeholder / landlord is obliged to participate actively.

Informal Negotiation

If the Lease has been owned for less than the requisite two years, the non-statutory procedure can be followed i.e the Lease owner can make an approach to the freeholder / landlord and simply negotiate the new terms (length of term, ground rent etc) until an agreement has been made.  

How much does it cost to extend a Lease?   

In return for extending the Lease, the freeholder / landlord, will charge a premium. This is calculated by a surveyor, based on a set formula that considers the value of the property, the number of years left remaining on the lease, the annual ground rent and the value of improvements leaseholders have made to the flat.

In addition to the premium, the Lease owner will need to cover the costs of their own legal costs; often the freeholders / management company’s legal costs; and any valuation fees and disbursements (eg Land Registry registration fees).

What are the steps for extending a lease?

This depends on whether the statutory or voluntary route is taken, but in summary the steps are as follows:

• Take initial advice and appoint a solicitor;
• Appoint a surveyor to provide a valuation to help ascertain the premium;
• An offer of the proposed terms (including the length of the term, ground rent, premium etc) is made – if statutory then this will be done by serving an official notice setting out the proposed terms for the new lease including the premium. Under the Act a Lease owner is entitled to a lease on the same terms subject to some modernisation;
•  Pay the deposit requested by the freeholder/ landlord – ordinarily this will need to paid within 14 days and it either £250.00 or 10% of the proposed premium, whichever is greatest;
• The freeholder / landlord will serve a counter-notice which will include a counter offer – under the Act this has to be served within a certain timeframe;
• Negotiations take place as to the price of the premium, including input from each party’s surveyors;
• Once the final premium is agreed, the freeholders / landlord’s solicitors will draft the lease extension paperwork and issue the same to the Lease owner’s solicitors for review and amendments;
• Once the final documents are agreed, the solicitors will prepare and arrange completion and registration at the Land Registry.

I am selling my flat and my buyer has requested a Lease extension. What happens now?

Under the statutory method, a seller can serve the formal notice claiming a new Lease on the freeholder / landlord and then sell the flat with the benefit of that claim, by assigning it simultaneously with the lease. The Lease owner’s solicitors will ensure that the relevant clauses are included within the sale contract and this will allow a buyer of the flat to take advantage of the right to a new lease under Act without having to wait for two years to satisfy the ownership qualification. The seller might wish to consider passing on some of the costs of issuing the initial the formal notice to the buyer and ultimately the buyer must be satisfied with the initial notice and terms offered.

Concluding remarks

The Lease extension process can be lengthy and costly, and it is therefore very important that the Lease owner has appointed their solicitor early in the process. Whilst the costs can be significant, extending the Lease can equally add thousands to its value and perhaps most importantly ensure the flat remains attractive to both Lenders and buyers alike.

Our dedicated team of property lawyers are well experienced with Lease extensions, so please feel free to contact us, with any questions you may have.