Extending your lease. Preserving your property value. If the lease on your flat is under 90 years, extending the term will help protect the long-term value of your asset. Under the Leasehold Reform, Housing and Urban Development Act 1993, most leaseholders who have owned their flats for more than two years have the right to require their landlord grant them a new lease of their flat. Extending the lease of a flat under the Leasehold Reform legislation is a specialist discipline which requires expert knowledge and experience. Failure to follow the correct procedures can lead to adverse consequences – such as a leaseholder’s claim being withdrawn, or the landlord losing their right to request a higher premium. Our team of Leasehold Enfranchisement solicitors are experts at guiding our clients through the process, from advising on a suitable valuation surveyor and serving the statutory notices through to the relevant court/tribunal applications (if required) Below we have set out some brief guidance on your rights as a leaseholder and also on the process of extending the lease on your flat. Get in touch Extending the lease of a property If the term of a lease of a property has less than 90 years left, then the leaseholder will need to consider extending the lease – primarily, for two reasons: The cost of extending the lease of a flat will be significantly more if there are less than 80 years left to run Most mortgage companies will not lend on a flat where the lease has less than 80 years left to run, making the flat more difficult to sell or re-mortgage The right to a new lease Although named ‘lease extension’, the right is actually to a new lease rather than an extension of the old one. The new lease will be on broadly the same terms as the current lease, except: the term of the lease will be extended to the remainder of the existing term, plus an additional 90 years The ground rent will be reduced to nil (called a “peppercorn rent”) In exchange for the new lease, the leaseholder must pay the landlord a “premium” which is calculated according to a formula. The formula takes into account: The value of the ground rent that would have been paid during the remainder of the term of the existing lease The decrease in value of the landlord’s interest in the flat that granting the new lease will have The increase in the value of the flat following the completion of a new lease (sometimes called “marriage value”) Whilst there are online calculators that can provide an indication of the likely premium, we always recommend that independent valuation advice is sought from a suitably qualified and experienced valuation surveyor. The process of extending the lease of a property To begin the process of the lease extension, the leaseholder will serve a Notice of Claim setting out their claim to a new lease, and the premium that the tenant proposes to pay. Once the Notice of Claim is served, the landlord has the right to ask the leaseholder to pay a deposit of 10% of the premium proposed by the leaseholder. The landlord will also have two months to serve a Counter-Notice, confirming whether they accept that the leaseholder has a right to a new lease and, if so, which of the leaseholder’s proposals they accept and do not accept, with any accompanying counter-proposals. The landlord will often not accept the premium proposed and will instead make a higher counter-offer. The parties’ respective surveyors will then try to agree the premium if possible. If the premium is not agreed within two months of the date on which the Counter-Notice if served, then either party may apply to the Property Chamber of the First-tier Tribunal and they will determine the amount of the premium, as well as any terms of the new lease that remain in dispute. Once the premium and the terms of the new lease have been agreed (or determined by the First-Tier Tribunal), the landlord and the tenant have two months to complete the new lease. If the new lease does not complete by the statutory deadline, then either the landlord of the leaseholder must apply to the County Court for an order requiring the lease to be completed. The Leasehold and Freehold Reform Act 2024 The above Act is already partially in force but the most significant provisions are yet to become law. Both the lease extension and the collective enfranchisement processes are due to become considerably easier for the leaseholders. The Act includes the removal of the requirement of owning the lease for the previous 2 years and the increase of the non-residential limit of mixed-use buildings to 50% from 25% for the purposes of enfranchisement claims. In addition, the Act removes the landlord’s automatic entitlement to their legal costs of the lease extension or enfranchisement, which will make the process far more attractive for the leaseholders. The security of the lease term increasing to 990 years from 90 will remove a significant disadvantage of the leasehold tenure. Another important change is abolishing the so-called ‘marriage value’ – which is effectively an increase in the property’s value following an extension of the lease. Landlords are currently able to claim a marriage value premium once the term left on the lease has fallen below 80 years. You may wonder whether it is worth waiting for the above act to come into force to extend your lease. Our specialist team will be able to provide bespoke advice on your specific situation to ensure you achieve the best outcome. Other options for extending your lease If you are one of a number of leaseholders in a block of you flats, you may also be interested to read our pages on buying the freehold of a block of flats “The Right of First Refusal” and the Right to Manage or Collective Enfranchisement. Get in touch Contact Laura Hooke Partner Residential Property 020 8971 1023 Message Connect On this page Contact our Leasehold Enfranchisement lawyers Get in touch
