Negotiating a Lease Extension Premium

Lease extension cost negotiations are like any other property transaction: you want to pay less, and the freeholder wants you to pay more. The difference is that a statutory lease extension relies on a complex legal formula to calculate the exact premium.

Negotiations usually break down when either party acts unreasonably, or when offers are made blindly without the backing of a professional RICS valuation.

This article explains how to successfully negotiate a lease extension premium, provides a downloadable template letter to approach your freeholder, and outlines how to avoid expensive Tribunal hearings.

When do you negotiate the premium?

You can negotiate at two distinct points during the process: informally before any legal notices are served, and formally after the freeholder responds to your legal claim with a counter-offer.

To ensure you have the upper hand in these negotiations, we can help. Get an online quote to see how we can save you money on your valuation costs, or arrange a free initial consultation with a member of our team:

Step 1: Get a RICS lease extension valuation

Never enter a negotiation blind. Most specialist RICS surveyors will calculate a "best-case" and "worst-case" scenario for what you should pay under the statutory Leasehold Reform Act formula.

Step 2: Make an informal offer (Template Included)

If you have a direct relationship with your freeholder, you can attempt to negotiate informally before incurring heavy legal fees. Inform them of your intention to extend and state your opening offer based on your RICS valuation.

• The Best Outcome: They agree to a fair premium, and you move straight to conveyancing.
• The Worst Outcome: They ignore you or demand an inflated price, at which point you simply proceed to the formal statutory route.

Step 3: Serve the Section 42 Notice

If informal negotiations fail (or if your freeholder is a large management company or local council that refuses informal offers), your solicitor will serve a statutory Section 42 Notice. This legally compels the freeholder to grant the extension.

You must include a proposed premium in this notice. The best strategy is to put forward a reasonable offer just below the middle ground of your surveyor's "best and worst-case" valuation bracket. Starting too low can antagonise the freeholder and guarantee a hostile counter-notice, while starting too high wastes your own money.

Step 4: Handle the Section 45 Counter-Notice

Your freeholder has two months to respond with a Section 45 Counter-Notice. Unless they accept your initial offer, this notice will outline their proposed (and usually much higher) counter-premium.

Step 5: Instruct your surveyor to negotiate

Once the Counter-Notice is received, the formal negotiation phase begins. This is not handled by your solicitor, but directly between your RICS surveyor and the freeholder's surveyor.

• Accept the Counter-Offer: If the freeholder's premium is very close to your surveyor's valuation, it is often cheaper to simply accept it rather than paying your surveyor hourly fees to argue over a few hundred pounds.
• Surveyor Negotiation: If the gap is significant, your surveyor will challenge the freeholder's valuation data. Surveyors typically charge between £150 and £300 per hour for negotiation. Always weigh the cost-benefit: spending £1,000 on negotiation fees to reduce the premium by £1,200 is rarely worth the time and stress.
• Proceed to Tribunal: If the two surveyors cannot reach an agreement within the statutory timeframe, your solicitor can escalate the dispute to the First-tier Tribunal (Property Chamber). The Tribunal will review the evidence and legally impose a final premium. Because Tribunal costs are unrecoverable, this is always treated as a last resort.