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If you own a leasehold property, the number of years remaining on the lease will gradually drop. Once it falls towards 80 years, you should consider extending the lease, as it can become considerably more expensive to do this once less than 80 years remain.

Most leaseholders have a statutory right to extend their lease. We take a look at how to exercise this right and what is involved in getting a lease extension.

Why extend a lease?

A property will generally lose value once a lease falls below 80 years. This is because it will be harder to sell as the buyer will usually want to go through the lease extension process and this costs more once fewer than 80 years remain.

Mortgage lenders will not lend once the term remaining drops below a certain level. This varies depending on the individual lender’s criteria, but is often around 70-75 years remaining. This means that a property would only be able to be sold to a cash buyer, which will severely limit the market.

The right to extend a lease

The Leasehold Reform Housing and Urban Development Act 1993 gives certain leaseholders the right to extend their lease for 90 years if the property is a flat and 50 years if it is a house. The ground rent will also effectively be eliminated.

To qualify, you need to own a lease that was originally granted for more than 21 years, referred as a ‘long lease’, and have owned the property for at least two years.

If you are buying a property and want to extend the lease, you can ask the seller to start the process and take it over once you own the property, so that you do not have to wait two years.

How much does it cost to extend a lease?

You will need to pay the freeholder a premium for extending the lease. This is generally calculated by a specialist leasehold valuation surveyor as it is a complex calculation.

At present, if a lease has less than 80 years remaining, an extra sum is payable to the landlord. This is known as the ‘marriage value’ and is based on the increase in value of the property that will occur once the lease has been extended. New legislation is pending which will abolish marriage value.

You will also need to pay your legal costs, the Land Registry’s fee for registering the lease extension and the landlord’s reasonable legal fees and valuation fees.

How does the lease extension process work?

In some cases, a lease extension can be dealt with informally if the landlord is agreeable. However, there is a risk that they could pull out during the transaction and if they do, you would need to start the formal process from scratch.

Once you have had a valuation carried out, the first step in the formal process is to serve notice on the landlord advising them that you wish to extend your lease. This needs to contain a range of information and a solicitor will be able to draft and serve this on your behalf.

The notice will include the price you are offering for the extension.

The landlord may request information from you at this stage. They can then serve a counter-notice which may offer different terms and a higher premium.

Generally, negotiations will be entered into at this point to try and agree on a price. If this is not possible, then the First-tier Tribunal (Property Chamber) can be asked to set the premium. This is a specialist property court that deals with freehold and leasehold matters.

Once the price is set, your solicitor will be able to draw up the documentation for the lease extension. You will then need to pay the premium to the landlord and the extension will be completed. Your solicitor will register the new lease with the Land Registry.

Contact us

If you are thinking of buying your first home please contact one of our Residential Property experts.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.