What Is The Cost Of The Average Lease Extension

What is the cost of the average lease extension

The primary principle to understand is that, should you never extend the lease on your flat, it will eventually run down to zero and then the apartment will 'revert' to the freeholder. In other words, you hand it back and they may then advertise it with a new long lease to another person. In the event that you extend the lease, you then put off this time of reversion and the point that the freeholder is able to resell the lease. Thus the legal system gives you mechanisms to compensate the freeholder.

In a free market, the freeholder can theoretically insist on whatever they want to give you a lease extension. Before 1993 there was not a lot to prevent freeholders charging whatever they wanted to provide you a lease extension or to merely say no altogether to permit one. Legislation now prevents them exploiting your desire to extend the lease and it recognises that there was an unfair balance of power: leaseholders have been compelled to extend their lease so that they can keep on living in the apartment, freeholders could refuse to give that extension.

The Leasehold Reform Act of 1993 and Commonhold Act of 2002 gradually augmented the rights of flat owners. Currently there are approved processes for extending your lease and specific stringent rules on restrictions on how it is charged. Essentially, if you qualify and stick to the procedure, noone can stop you extending your lease.

Lessees might feel assertive and knowledgeable enough to negotiate with a landlord and get around legal costs. The freeholder may then grant an extension that is cheaper than the alternative 'statutory' route.

Undertaking the statutory route includes using Section 42 of the Leasehold Reform, Housing and Urban Development Act 1993. Take this route and within reason the landlord is locked into a legally-defined procedure that is likely to typically result in your getting a lease extension inside a year. Section 42 gives you a right to a 90-year extension to your lease (be aware, this is PLUS 90 years not UP TO 90 years), drop of the ground rent in effect to zero (technically referred to as a peppercorn) and the pricing mechanisms are outlined in law.

You can find broadly two groups of charges to lease extensions: the premium due to the landlord; and all the other charges, including legal, valuation and any project management charges.

The premium is calculated centered principally on 3 elements: the sum of ground rent you pay to the landlord; the duration of the lease; and the 'unimproved' value of your property in all cases. We won't go into the technical detail now, but it is important to note that a different component is added to the premium referred to as 'marriage value' if the total left on your lease is lower than eighty years and this might add a lot of money at a stroke.

In general you is likely to engage an expert valuer to determine the premium. This is ordinarily one with considerable familiarity of equivalent situations, up to date settlement values and the regional marketplace. They are likely to be a member of the Association of Leasehold Enfranchisement Practitioners and the Royal Institution of Chartered Surveyors. They might often determine your 'offer' price on the initial Notice sent to the landlord and might very likely carry out the negotiations. This valuer will need paying and the fee is to be expected to be in the high hundreds or low thousands for a single apartment lease extension.

Your solicitor will be essential to the process and once more, steer clear of the temptation of using the cheapest. You would be advised to steer clear of neighborhood family law solicitors, let's say, that only dip into in enfranchisement matters. One slip-up in the convoluted Notice-serving procedure can be very expensive in terms of money and time. You will ordinarily pay your solicitor substantially more than you would pay a valuer. You would be advised to negotiate the amounts and be cautious of hourly charges lacking a cap. If the landlord is not co-operative they might make an effort to tie up your solicitor in knots and this can get costly.

In occasional instances you might not come to an agreement with your landlord and your case must to be referred to the Leasehold Valuation Tribunal (LVT). This will be one more outlay and is best avoided by both parties in view of the fact that they pay their own legal costs. If you gang together with your neighbours and all look for lease extensions at the same time, you might be able to share the costs of the LVT, should it go that way. Though you do not need a valuer as an expert witness or a solicitor to support you, you had better believe the landlord is likely to bring out their 'big guns' and they will make it very difficult for a lay person.

Now that we have outlined the statutory method pricing, it is worth remembering that a lease extension might be undertaken via negotiation and informally between lessees and freeholders. You can strike a bargain regarding how much longer that you wish the lease to be, modifications in ground rent and how much you ought to pay the landlord. By way of example, you may simply want a 20-year lease extension so you can more easily sell the flat. You is likely to consent to a substantial rise in ground rent and therefore the premium you agree might be in the region of one third of going the statutory route.

This can be cheaper than the statutory route, nevertheless you will need to exercise a little give and take. As with all negotiations, knowledge is power. You should never undertake this kind of a negotiation without the professional assistance of a valuer (usually one expert in leasehold matters) and an enfranchisement solicitor. Freeholders more often than not have deep pockets and access to the top guidance and you will have to pay their share of the legal fees, it is worth noting (although at the LVT each party pays their own costs). The investment you make in good advisers will pay dividends in the negotiation.


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Andrew Szebeni is a part of the Association of Leasehold Enfranchisement Practitioners. ALEP has 108 vetted members including solicitors and surveyors.How to buy your share of freehold