Step-by-Step Guide to Extending a Lease on UK Property

The cost to extend a lease on a property in the UK can vary significantly depending on several factors. 

Here’s a detailed breakdown of what to expect:

FACTORS AFFECTING LEASE EXTENSION COSTS

Current Length of Lease:

Less than 80 Years: If the remaining lease term is less than 80 years, the cost can be significantly higher due to the inclusion of “marriage value” in the calculation.

More than 80 Years: Extending a lease that has more than 80 years remaining tends to be less expensive.

Property Value:

The current market value of the property plays a crucial role in determining the premium for extending the lease.

Ground Rent:

The amount of ground rent currently paid can affect the extension cost. Higher ground rent usually results in a higher premium for the lease extension.

Location

Property location influences its market value, and consequently, the cost of extending the lease.

COMPONENTS OF LEASE EXTENSION COSTS

Premium:

This is the main cost and is calculated based on the factors mentioned above. It is essentially the price you pay to the freeholder to extend the lease.

Valuation Fees:

Hiring a qualified surveyor to provide a professional valuation of the premium is necessary. Expect to pay between £500 and £1,500 depending on the complexity and location of the property.

Legal Fees:

Both you and the freeholder will incur legal costs for the lease extension process. Your legal fees can range from £800 to £2,000, while you may also need to cover the freeholder’s legal costs, which can be similar.

Freeholder’s Costs:

The freeholder may also charge for their own valuation and any other administrative costs.

EXAMPLE COST BREAKDOWN

For illustrative purposes, let’s break down a typical lease extension scenario:

• Current Lease Term: 75 years
• Property Value: £250,000
• Ground Rent: £100 per year

Estimated Costs:

• Premium: £8,000 to £15,000
• Valuation Fees: £800
• Your Legal Fees: £1,200
• Freeholder’s Legal Fees: £1,000
• Total Estimated Cost: £11,000 to £18,000

STEPS TO EXTEND A LEASE

Hire a Surveyor:

Engage a chartered surveyor experienced in lease extensions to provide a valuation.

Negotiate with Freeholder:

Use the valuation to negotiate the premium with the freeholder. If negotiations fail, you can apply to the First-tier Tribunal (Property Chamber) for a decision.

Legal Process:

Instruct a solicitor to handle the legal aspects, including serving the Section 42 Notice (Tenant’s Notice) to the freeholder if you’re following the formal statutory process.

Pay Premium and Costs:

Once terms are agreed, pay the premium and all associated costs to complete the extension.

ADDITIONAL CONSIDERATIONS

Informal vs. Statutory Process: The informal process can be quicker and more flexible but may not offer as favourable terms as the statutory process.

Timelines: Extending a lease can take several months, especially if the statutory process is used and negotiations are protracted.

RESOURCES FOR FURTHER GUIDANCE

• Leasehold Advisory Service

• Royal Institution of Chartered Surveyors (RICS)

By understanding these costs and the process involved, you can better plan and budget for extending the lease on your property