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Extending a Lease

What is a Lease?

A lease is a legal document agreed between a landlord and a tenant and contains obligations on both parties in relation to the property the building and any private areas used by the tenants of other flats. When a lease is first granted it is usually for a definite term usually either 99 or 125 years.

Once a lease has reached the end of its term and if it has not been extended, then ownership of the property will revert back to the landlord. The current owner will simply become a tenant of the landlord and will then have to pay a monthly rent to stay at the property. The tenant will no longer own the property and is unable to dispose of it.

Why should you consider extending your lease?

By extending your lease it will add value to your property. Ideally you should look to extend your lease before it reaches 80 years unexpired as “Marriage Value” will then also become payable to your landlord to extend it.

Many mortgage lenders will not lend to potential buyers once a lease has dropped to between 60-70 years. The term remaining varies from lender to lender. If you try and sell your property this will limit buyers who wish to buy with a mortgage. If a lease has around 70-75 years remaining it is likely that the buyer will ask you to extend the lease prior to it being sold at your expense.

The less years the lease has left the more it will cost you to extend it. If you plan to hold onto your property for a number of years ideally the earlier the better it will be to extend as the premium payable to your landlord will be a lot lower.

Who is Eligible?

To be eligible to extend your lease you will need to have owned your property for a minimum period of 2 years. This is the date of registration at the Land Registry and not the date that you purchased the property. Some registrations at the Land Registry could be some 3-4 weeks if not longer once a purchase has completed and could well affect the two year requirement.

Under the Leasehold Reform Housing and Urban Development Act 1993 a tenant of a flat who has owned the property for a 2 year period is automatically entitled to a further 90 years in addition to the current lease term outstanding. Any ground rent payable to your landlord will also be reduced to a “peppercorn” rent i.e. nothing.

If you have not owned your property for the requisite two years, then you may still be able to extend but only with your landlords agreement. It is likely that the terms such as the lease length and the ground rent will be at the landlord’s discretion and the premium payable will be on a “take it or leave it” basis.

Why is it advisable to instruct a professional Surveyor/Valuer?

When extending your lease it is important to obtain advice from a qualified professional such as a Chartered Surveyor. The surveyor will advise whether the premium being offered is in fact a fair one and this will enable you to make a decision as to which process is followed to extend the lease and to ensure that your landlord is not overcharging you. In order to obtain a valuation a fee will be payable to the valuer.

When negotiating the premium your surveyor will negotiate with your landlords’ surveyor the actual price to be paid to extend. The premium is governed under legislation and its calculation is quite complex. Several factors are considered in arriving at the premium and it is these factors that are discussed and agreed between the respective parties’ surveyors.

What happens if a premium cannot be agreed between the valuers?

If the premium cannot be agreed there is the option for it to be determined by The First Tier Tribunal. Each party will be responsible for its own legal costs unless overruled by the Tribunal. This can be expensive and your surveyor/valuer will be able to advise you further in relation to this. It is therefore preferable for both parties to agree the premium without the necessity of an application to be made.

How much is it likely to cost to extend my lease?

When extending your lease you will be responsible for the costs of your legal representative, those of your surveyor/valuer and also those of your landlord’s legal representative and landlord’s surveyor. Many solicitors/conveyancers will act on a fixed fee basis but some will charge by the hour and it is important to agree this at the outset.

In addition there is also the premium payable to extend the lease itself which is due to your landlord who owns the freehold of the building.

How long will it take to extend my Lease?

This will vary and will depend on how long it will take the two surveyors/valuers to reach agreement on the premium payable. It could take between 3 – 12 months. If the lease is being extended under the 1993 Act then time limits are in place to prevent this from dragging on. Your legal advisor will be able to offer advice as to timescales.

How much money will I be required to pay to start the process?

Under the 1993 Act once the Section 42 Notice is served on the Landlord, the Landlord is entitled to a payment of either £250 or 10% of the proposed premium inserted into the Notice whichever is the greater. This amount will be deducted from the final costs and premium payable to the landlord and the balance of the legal costs and premium will be payable to your legal representative just before completion of the lease extension is due to take place. 

What happens if I change my mind after I have instructed my legal representative?

If you decide not to proceed then abortive costs will be payable to both the landlord’s legal representative, your landlord’s surveyor and that of your legal representative and surveyor. However these costs are limited to the actual work carried out up until the matter proved abortive.

Cate Cussell

Solicitor and Partner, Head of Property Department, Colchester

Cate is a Solicitor in the Property Department covering all aspects of Property including a wide range of commercial matters, leases and residential sales and purchases. Cate approaches every client issue with a clear sense of commercial awareness. Before law, Cate had a successful career in sales. She then studied law part time with BPP in London finishing her studies in 2012.

Email: [email protected]

“The management of my case by GoodyBurrett LLP namely by their young partner Cate Cussell is just amazing, the quick sharp service is second to none, no effort is spared, always ahead of any expectations.  Thanks Cate”

Other matters which could be related –

Depending on your circumstances you may need advice for various reasons such as:

If you would like to find out more information on Leases

Please complete our contact us form at the top of this page, email [email protected] or feel free to call us on 01206 577676