Lease Extension Process

22/07/2018
The lease extension process (or leasehold extension process) is undertaken by leaseholders looking to add additional years onto their lease. There are two routes to choose from:

  • Formal Lease Extension - follows the statutory route adding an additional 90 years onto your current lease term, reducing ground rent to zero (peppercorn), premium calculated within and the process time line governed by statutory parameters.
  • Informal Lease Extension - doesn't follow the statutory route, can agree any length of lease term (up to 999 years), new clauses and ground rent, premium can be for any value and isn't governed by a set time line.

This article details the step-by-step process to formally extend your lease under the Leasehold Reform Act 1993. We also explain the costs for extending your lease, can a freeholder refuse to extend a lease on a flat and how long does it take to extend a lease.


Do you need help extending your lease?

We have a specialist lease extension team of solicitors and surveyors and we provide:


* Our quotes are fixed - We specialise in lease extensions - We explain the process in plain English


The 4 Stages of The Formal Lease Extension Process

The Leasehold Reform Housing and Urban Development Act 1993 (as amended by the Commonhold and Leasehold Reform Act 2002) allows Qualifying leaseholders to require the freeholder to allow the extension of any lease by a fixed term of 90 years and cancelling ground rent.

If the correct conditions are met, a freeholder cannot refuse to negotiate with you as a leaseholder regarding how much they will sell you the lease extension for.

    1

    Check you are eligible to extend your lease


  • The lease must have been a long lease when granted (of more than 21 years); and
  • You must have owned your property for at least 2 years*

* If you own a shared ownership property, then the statutory time does not start until you staircase to 100%. For example, if in 2016 you staircase to 100% then you’ll have to wait until 2018 before you can start the formal lease extension process, however you may be able to extend your lease informally.

Important: Even if the above 2 criteria are fulfilled, you still cannot go ahead with your application if:

  • the landlord is a charitable housing trust and the flat is provided as part of the charity’s functions; or
  • it is a business or commercial lease.

Can a freeholder refuse to extend a lease on a flat?

As long as you are an eligible leaseholder then a freeholder cannot refuse your formal lease extension, although they can disagree with your premium offered (see Stage 3 - Section 42 Notice).

Eligible? But can you afford to extend?

It is critical for you to have sufficient finance not only to pay the lease extension premium but also to cover all the legal and valuation costs for you and the freeholder. If you don't have the savings to pay for the lease extension then you could look to remortgage to free up equity or sell the property and use the sale proceeds to pay for the premium.


Fixed Fee, No Sale No Fee with a 5 out of 5 rating

 
    2

    Value the premium payable to extend your lease

Click here to see how the premium is calculated - this stage takes 1 to 2 weeks depending on your surveyor's availability
Lease-Extension-Agreement

You need to instruct a RICS valuer to confirm the premium payable to the freeholder to extend your lease. The premium compensates the freeholder for giving you an additional 90 years. This is the most important stage of the process because if the premium you include within the Section 42 Notice (Stage 3 -Tenant's Notice) is incorrect (too low) then it is likely the freeholder will reject the offer with a Section 45 - Counter Notice, offering their own surveyor's assessment of what the premium should be.

The valuer’s purpose is:

  • to ensure you have an idea of the potential premium in best and worst case situations
  • to advise what the offer in the Tenant's Notice should be
  • to frame the response should the landlord give a Section 45 Counter-Notice*
  • to help negotiate and agree the freeholder’s final price*
  • to provide advice on the state of the structure of the property, what its repair condition is and how this will affect future service charges etc.

* Chargeable at an hourly rate - speak to your surveyor to confirm their hourly rate for this work

Top tip: Instruct a specialist lease extension valuer

Not all RICS surveyors specialise in lease extensions. You should instruct a RICS surveyor that has experience of lease extension rules and have knowledge of recent cases settled at the Tribunal. We have specialist lease extension RICS valuers throughout England and provide competitive quotes.



    3

    Serving the Tenant's Notice (section 42 Notice)

This stage can take between 2 to 8 months to complete

Once you know how much to offer the freeholder you can instruct a solicitor to handle the serving of the section 42 notice and (stage 4) reviewing the lease and registering it at the Land Registry

Once the solicitor has your formal instruction, they will draft the Section 42 Notice to the freeholder which includes:

  • Name and address of eligible leaseholder/s
  • Name and address of the freeholder*
  • Premium offered
  • Terms to be included in new lease
  • Name of the lease extension solicitor acting on the leaseholder's behalf
  • Date by when the freeholder must respond with their counter-notice
  • Leaseholder's signature
* You or your solicitor will need to find out who your freeholder is and where they live so that the notice can be served on the correct freeholder. You can find your freeholder's last known address by paying £3 to the Land Registry and download a copy of the freehold title. If your freeholder cannot be located, then you can apply for a Vesting Order.

Can you serve your own section 42 notice?

Yes you can, however making an incorrect section 42 notice may delay the lease extension process and/or could mean you can't serve another notice for 12 months. Click to read more about the Section 42 Notice.


Once the notice has been served on the freeholder, your solicitor registers the notice with the Land Registry to ensure that if the freeholder sells the building to another freeholder, the new freeholder is legally responsible to respond in the prescribed way to the notice. The Land Registry charge £20 to register the section 42 notice on the leasehold title.

The valuation date corresponds to the date the notice is served. This date is when many of the variables affecting the premium price are set, such as the years left on the lease.

What happens after the notice is served?

After the landlord has received the Initial Notice, they have 21 days to request evidence of your right to a formal lease extension. If requested, you then have 21 days to return this information. The landlord also has the right to inspect your flat to carry out a valuation subject to 3 days notice in writing.

You must ensure that your solicitor has all the relevant information and documents to meet the time limit otherwise the Tenant's Notice will be deemed withdrawn. You will not only have to pay costs to the landlord but you won't be able to serve a new notice for 12 months.

What do you have to pay when you serve the tenants notice?

As soon as you have served the notice, your landlord can oblige you to pay a deposit, valued at 10% of your proposed premium price or £250, whichever is greater. The landlord's solicitor will also require you to pay their legal fees to your solicitor so that they can be held on account and paid across on completion or if you decide not to extend your lease.


Landlord's Section 45 Counter-Notice

The landlord has to serve a Section 45 - Counter-Notice by the date specified in the Initial Notice (Section 42 Notice). Their notice must either:

  • Agree to your lease extension request and accept your terms or propose alternative terms; or
  • Not agree to your requests, giving reasons for the court to determine.

If you and the freeholder cannot agree on the price two months after the Section 45 Counter-Notice is served, then either of you can apply to the Leasehold Valuation Tribunal for an independent determination. This has to be done within 6 months of receipt of the Section 45 Counter-Notice being served.

If the landlord fails to serve a Counter-Notice by the specified date, you can apply to the county court for a Vesting Order (click on the link to find out more). If this is granted, you can extend your lease according to the terms stated in your Tenant's Notice terms, including the premium proposed. You have to do this within 6 months of the date on which you should have received the Counter-Notice.

    4

    Extending the lease

The final stage in the process is to handle the conveyancing which accompanies the extension of your lease. You solicitor will:

  • Draft the new lease - once the premium has been agreed between the freeholder and the leaseholder, the freeholder's solicitor drafts a new or variation to the existing lease and sends through to the leaseholder's solicitor. This process can take anywhere between a week to a month so it is important you chase the freeholder's solicitor.
  • Review the new lease - the leaseholder's solicitor reviews the new/varied lease including the demise, terms, covenants and third party's rights are correct and in line what has been agreed.
  • Sign the new/varied lease - the leaseholder's solicitor provides the lease for signing to the leaseholder. This is signed as a deed and requires a witness. Once signed the lease is sent back to the leaseholder's solicitor.
  • Completion - a completion date is set, that normally ties in with a remortgage or sale (if this is how the premium is being funded). On the day of completion the leaseholder's solicitor sends across the premium for the new lease and the freeholder's professional fees to the freeholder's solicitor and upon receipt of this they confirm completion.
  • Post completion - after completion the leaseholder's solicitor pays any stamp duty, settles any ground rent or service charges due and then registers the new lease at the Land Registry.

How much does it cost to extend your lease?

 

Informal Lease Extension Costs

Formal Lease Extension Costs

RICS Lease Valuation

£600 Inc VAT

£600 Inc VAT

Section 42 notice legal fees

N/a
£600 INC VAT

Lease extension legal fees
£720

£720
Other costs include:
Stamp Duty
You don’t have to tell HMRC or pay SDLT when
you buy a new or assigned lease of 7 years or more,
as long as the premium is less than £40,000 and the
annual rent is less than £1,000

TBC TBC
Land Registration
Based on the property value.
Read about the land registration charge

TBC TBC
Online Identification (per Person)
Read what ID does your solicitor need

£8 £8
Official Copy of Register & Title Plan (per title)

£6 £6
Official Copy of Lease

£3 £3
Bankruptcy and OS1 priority land registry fee

£10 £10
Registration of the Section 42 notice at the
Land Registry
(formal route only)

N/a £20
Additional solicitor’s legal fee for
Deed of substituted security
(only if mortgage)

£120 INC VAT £120 INC VAT

Is there stamp duty to pay when extending your lease?

You do have to pay stamp duty when:

  • you extend your lease of 7 years or more and pay a premium/consideration of more than £40,000 to the Freeholder.


You do not have to pay stamp duty land tax on your lease extension when:

  • you buy a new or assigned lease of 7 years or more, as long as the premium is less than £40,000 and the annual rent is less than £1,000; or
  • you assign or surrender a residential or non-residential lease (granted for 7 years or more) and the chargeable consideration is less than £40,000


Any questions? Call 0333 344 3234 (local call charges apply)




Why should you extend your property's lease?


Pros for extending your lease


  • You increase the value of your property
By extending your lease by 90 years, you increase your property's value because if you want to sell up, the person who buys it will have that much longer to live in it - as you will - or sell it on in turn at a higher price. It also means that you're more likely to be able to pass on an asset to other family members to inherit.

  • You no longer have to pay ground rent
Under the formal lease extension route, once you extend your lease by the statutory 90 years, then the ground rent reduces down to a peppercorn rent (you pay no ground rent).

  • You can remortgage your property
The shorter your lease is, the less likely mortgage lenders are to loan money against your property (typically, they won't lend if there's less than 70 years remaining on the lease term). By adding 90 years to your lease, this vastly increases your property's remortgage ability.

Cons for extending your lease


  • Cost of the leasehold extension process
There is considerable expense in completing the process, the largest being the sum you'll have to pay to the freeholder to compensate them for your extended lease - this is called the premium. You also have to pay for a surveyor to conduct a leasehold valuation, a solicitor to handle the action and the ensuing conveyancing and - most notably - you'll have to pay for your freeholders' 'reasonable costs', which means you'll be paying for their legal and surveying expenses also. These matters are examined in our Lease Extension Cost article.

  • You don't become a freeholder
However long a lease lasts for, ultimately it is just a form of renting in that you have a landlord/freeholder. You do not, by extending a lease, gain greater legal control of a building and you'll still have to pay service charges etc.

  • You may have to go as far as a Leasehold Valuation Tribunal (LVT)
Should this happen, the process becomes more expensive. However, at this point you no longer have to pay your landlord's reasonable costs and because they have to pay for their own representation, this may dissuade them from taking matters this far without agreement.


Lease Extension Process Infographic (click to download PDF)

Lease-Extension-Process Diagram


Related News Articles

 
Informal Lease Extension Process - What are the Pros & Cons?
17/07/2018
Lease Extension Solicitors
11/07/2018
Lease Extension Valuation
09/01/2018
new-conveyancing-process.png

FREE Online Conveyancing Process for Buyers

Includes online checklists, videos, downloads and tips - plus it is free to use and remembers your progress.

 
Already have an account? Click here to log in