Find a Solicitor to Extend a Leasehold

Extending a lease through a leasehold extension allows leaseholders to extend their lease by 50 years if they are a homeowner and 90 years if they are a flat owner. The benefits of extending a lease include increased property value, avoiding leasehold disputes, avoiding escalating costs, the ability to make improvements to a property, an easier remortgage and sale process and the ability to negotiate changes to the lease terms. If your lease term is less than 80 years it is important to extend your lease.

This is a comprehensive guide for leaseholders looking to extend their leasehold, addressing leasehold property law. The content will cover the lease extension rights, the process of extending a lease and seeking a leasehold valuation, and the benefits and costs involved. 

We’ve written this for:

• Leaseholders nearing the end of their lease term
• Property owners wanting to extend their lease to increase property value
• Legal professionals advising clients on lease extensions
• Property investors dealing with leasehold properties

After reading, you’ll understand the legal rights of leaseholders, the steps involved in extending a lease, and the potential costs and benefits of doing so.

By the end of this guide, you’ll be clear on the benefits of seeking legal expertise from our property law experts to navigate the complexities of the lease extension process.

Legal rights for extending a leasehold

To extend your leasehold you need to be eligible for a lease extension.

The eligibility criteria for a lease extension include:

• The property must be a residential leasehold
• You must have owned the property for at least two years
• The original lease must have been granted for at least 21 years
• The property cannot be a shared ownership property or on a National Trust lease

Statutory lease extensions can be made under the Leasehold Reform Act 1967 and the Leasehold Reform, Housing and Urban Development Act 1993. 

Under the 1993 act there is a strict procedure for deadlines for lease extensions. Statutory lease extensions allow for an additional 90 years to be added to the term of your lease. Typically ground rent is reduced to zero when leaseholders extend their lease.

Legal process for extending a leasehold

There is a set legal process for extending a leasehold that must be followed by leaseholders. Below we outline the step-by-step process for extending a leasehold. 

Step 1: Initial valuation

When looking to extend a leasehold it is essential to obtain a professional valuation of the lease extension cost. This is important to ensure you get a fair price from the freeholder. A valuer can also negotiate with the freeholder on your behalf. You may also have to pay your freeholder’s valuation costs and ‘reasonable fees’. A solicitor can review and challenge these to ensure they actually are reasonable. 

A lease extension is calculated on the following basis akin to an investment basis. Essentially, the rate is calculated on the current value of the future income of the property.

So, in a valuation for a lease extension, the reduction in the landlord’s interest due to extending the lease at a nominal value is calculated.

This is the amount of ground rent a landlord would have received for the remaining period of the lease, and the 90 years they have to wait until the ownership of the lease would theoretically return to them. 

Step 2: Serving the Section 42 Notice

A Section 42 Notice is used to start the process of a leaseholder requesting to their landlord to extend their lease on a property. 

You will require the services of a surveyor to value the cost of the lease extension for you and a solicitor to draft the notice. It is advisable to secure the guidance of a solicitor to serve a notice on your freeholder to avoid wasted time and costs. It can be a complex notice to draft, and only small errors can cause a notice to be invalid.

The notice should be served to the competent landlord and also any party involved in the lease, including management companies. 

Serving the notice to the competent landlord is where things can get convoluted. The competent landlord is not always the freeholder. In some cases, the freeholder grants a long lease to an intermediary leaseholder who then grants a sublease to the tenant. Yet, if the lease has fewer than 90 years remaining the intermediary leaseholder would not be classified as competent. If you have an intermediary leaseholder, it is important to check that their lease term has at least 90 years remaining. 

Moving away from those edge cases, typically, a surveyor carries out a valuation of your lease and then sends a copy to your solicitors. 

Section 42 notices should include:

• The leaseholder(s) full name(s)
• The address of the leasehold property 
• Details of the lease, including when it was granted 
• The proposed premium your valuer suggests paying to extend the leasehold
• Number of years increase
• Proposed changes to the ground rent – typically it is eliminated or becomes nominal
• Provide a deadline for freeholder response, no less than 2 months from the date of the notice

A solicitor can then serve the Section 42 Notice on your freeholder stating the premium you would be prepared to pay to extend your lease.

If a notice is invalid and needs to be withdrawn, you must wait 12 months before you can serve another.

Step 3: Negotiating the terms

When a notice has been served, the freeholder usually has 2 months to respond to it, or the specific deadline set within. 

The freeholder responds with what is known as a counter notice, this is a Section 45 Notice. In this notice, the freeholder will confirm or deny the claim for a lease extension, state the amount they require for a lease extension to go ahead and suggest any new terms or amendments to the lease’s terms and conditions that they wish to make. 

The serving of a Section 45 notice – when the freeholder indicates an openness to grant a lease extension – marks the beginning of negotiations. 

The negotiation process will involve a back-and-forth process between your valuer and the freeholder’s valuer. 

When preparing a Section 42 notice, an experienced valuation surveyor will provide a best-case and worst-case scenario figure, this is essentially the valuation perspective from your valuer, based on local knowledge, and your freeholder’s perspective. This way counterclaims can be anticipated.

When there is no counter-notice served to your Section 42 Notice, and you’re eligible for a lease extension, a freeholder may be bound by the premium you state you are willing to pay.

If both sides cannot agree on a valuation the matter may be referred to a First-Tier Tribunal where a decision will be made by a combination of a chairman, a lawyer or surveyor and someone without knowledge of property law.

Step 4: Completing the lease extension

There are a few final steps to complete a lease extension. A lease extension agreement should be drafted.

Firstly, the original lease should be consulted. 

The following is usually covered:

• Parties - the names of all the parties, including the freeholder
• Extension term - the start and end date of the extension
• Rent – changes to the rent date, amount, or payment method
• Security deposit – whether a security deposit will change 
• Previous terms – a statement that the previous terms and conditions remain unless otherwise stated
• Signatures – the tenant and landlord/freeholder must sign
• Jurisdiction – the governing law that shapes the agreement
• Notices – addressing how notices will be delivered
• Termination – conditions required for either party to terminate the agreement before the end date, and the notice period required 
• Renewal – conditions under renewal and extensions can occur

Both sides sign the agreement when the terms have been agreed upon and submit it to the Land Registry to register the title.

Benefits and considerations

There are many benefits to extending a lease and some strategic considerations to make when deciding whether to go ahead.  

Increasing property value and eliminating ground rent

Extending a lease can significantly increase the value of a property, especially when selling or remortgaging. Why is this? Well, for one thing, a longer lease makes a property more marketable as it attracts a greater number of buyers.

Extending a flat’s lease by 90 years typically increases its value, while having fewer than 90 years remaining on a lease almost always limits the value of a property. 

This is because:

• Buyers consider the potential need and cost of extending a lease on a property they may purchase
• Getting a mortgage on a flat with a short lease can be tricky because lenders typically won’t offer a mortgage on properties with a lease under 70 years. This is because they prefer leases to last a minimum of 40 years after a mortgage is paid off, so the property’s value isn’t affected. With a short lease on your property, you may only be able to sell at auctions or to cash buyers
• Buyers can be put off by flats with high ground rent, leases extended on a statutory basis usually have £0 ground rent costs

Risks of delaying the process

There are some risks to not extending a lease as soon as possible. 

Delaying a lease extension can lead to increased costs down the line as costs for extending a lease can increase as the lease term remaining decreases and the possibility of losing the right to a statutory extension becomes more likely. 

On the other hand, when lease extensions are handled properly both leaseholders and freeholders can benefit. Leaseholders enjoy the advantages of an extended lease and freeholders get a fair premium for the value of the property.

Costs and fees involved

Leaseholders must pay a premium to the freeholder for extending the lease. Several factors influence the valuation:

• The length remaining on the lease – the shorter the lease, the lower the value of the property and the more expensive it is to increase the lease
• The marriage value – this is a calculation of the increase in the value of a lease due to its extension. The landlord is entitled to 50% of the property’s value increase when the lease falls below 80 years
• Ground rent – whether ground rent will be eliminated, its current cost and when it will be reviewed

Legal fees 

There are a few legal fees involved including solicitor fees for managing the lease extension process, then you’ll need to factor in the surveyor’s valuation costs. You may also need to pay additional fees for valuation disputes.

FAQs

What happens if the freeholder refuses my lease extension request?

If the freeholder doesn’t reply to a Section 42 Notice, a leaseholder can apply to the court for a Vesting Order which asks the court to grant the lease on the terms proposed in the notice. 

Seek advice from a solicitor, they can appeal to the freeholder to remind them of your rights and begin a negotiation process.

When a leaseholder and freeholder can’t agree on terms, they can apply to a First-Tier Tribunal which will set a premium. 

How long does the lease extension process take?

This depends on the complexity of your lease, how long negotiations take and whether your case goes to tribunal.

In general, it will take anywhere from 2 to 12 months to complete. You can then expect a further 3 to 12 months to register the extension with the Land Registry.

Why choose Lawhive for leasehold extensions?

Below are some of the main reasons to utilise our expertise in these matters:

• Legal expertise – our solicitors are experts in leasehold law and experienced in helping leaseholders navigate the complexities of extending their lease
• Combination of technology and legal expertise - Lawhive utilises technology to streamline the lease extension process, making it easier and more cost-effective for our clients
• Client-centric Approach: we’re dedicated to understanding your needs and providing tailored legal solutions for leasehold extensions

Leasehold extension legal advice

Extending a lease brings a multitude of benefits, including the ability to sell your property more easily and the elimination of ground rents.

Seeking professional legal advice ensures a smooth process, especially when getting a valuation and navigating the negotiation process. 

Leaseholders should act promptly to extend their lease to preserve value in their property. It pays to act quickly, as this gives a solicitor time to locate the freeholder if they are hard to track down. Get a free legal assessment today.

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