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

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

Is there stamp duty to pay when extending your lease?

You do have to pay stamp duty land tax when you extend your lease of 7 years or more and pay a premium/consideration of more than £40,000 to the Freeholder. Under the formal route you are buying 90 years so SDLT is always applicable, however if the premium you are paying is less than £40,000 then there is no stamp duty to pay. Use our online stamp duty calculator to work our what stamp duty you'll have to pay. You do not have to pay stamp duty land tax 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 To find out more visit the Government website relating to Stamp Duty Land Tax: transactions that don't need a return

How is the extension premium calculated?

A valuation will provide a premium payable to extend your lease by an additional 90 years. When carrying out a leasehold extension valuation, the surveyor will look at the outstanding term of the lease, the current rate of ground rent, the property's market value and its potential for a value increase following the extension. The premium calculated by the surveyor will also take into account the decrease in value of the freeholder’s interest, the increase in the value of the property, caused by the extension and compensation to the freeholder for reducing the ground rent to zero. It is advisable to obtain a valuation from a qualified surveyor who specialises in these types of valuations.

Can you serve your own section 42 notice?

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

What are the costs to extend formally and informally?

Professional Fees Informal Cost Formal Cost RICS Lease Valuation £600 INC VAT £600 INC VAT Section 42 notice legal fees N/a £600 INC VAT Completing process legal fees £720 INC VAT £720 INC VAT Freeholder's Reasonable solicitor and survey costs Click to find out what is a reasonable costs £600 to £3,000 INC VAT £600 to £3,000 INC VAT Other costs: Stamp Duty Land Tax TBC TBC Land Registration Based on the property value.Click to find out your land registration charge TBC TBC Online Identification (per leaseholder) £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 £6 £6 Registration of the Section 42 notice N/a £20 Deed of substituted security (only if mortgage) £120 INC VAT £120 INC VAT

Should I buy a flat with a 70-year lease?

The value of the property reduces as the lease gets shorter. There is no problem in principle in buying a flat with a short lease provided that its current price reflects this. It is however more difficult if you need to raise a mortgage to buy the property. Many lenders will be reluctant to lend on flats with short leases. It is still possible to consider buying a flat with a short lease, but the prospective lender will normally grant a mortgage on the basis that you will apply for a new lease. If you buy a flat with a short lease you will have to wait two years before you can apply for a new lease under the Leasehold reform act. If you are buying a flat that needs leasehold enfranchisement then follow our lease extension advice here - Buying a leasehold property with a short lease.

How long does lease extension process take?

Extending your lease can take anywhere from 3 – 12 months to complete. Once you serve your section 42 notice the freeholder has 8 weeks to respond with their counter notice. The time frame for the process depends on any negotiations that need to happen, if any. If you go into negotiations the leaseholder and freeholder have 2 months after the date stated in part 10 of the Section 45 Counter-Notice to negotiate the terms and premium. After the first 2 months, the leaseholder has 4 months to make an application to the Tribunal to determine the terms/premium. Once the terms and premium are agreed by the freeholder and leaseholder, both parties have 4 months to complete the legal work. This process can be completed a lot quicker if no negotiations are needed or alternatively if you are going via the informal route.

Can do a leasehold extension if I have not owned the property for two years?

If you have owned the property for less than 2 years, the freeholder can either refuse to extend the lease, or negotiate terms and premium. This is called the informal route. The informal route doesn't follow the statutory route, the freeholder can agree any length of lease term, new clauses and ground rent, premium can be for any value and isn't governed by a set time line. As the informal route is an informal negotiation between a freeholder and leaseholder, your freeholder will often offer you a more expensive premium. The fact a Freeholder has made you an informal offer doesn't mean you have to accept it you may feel that the premium is too high for the number of years offered and may want to wait until you have owned the property for 2 years to extend via the formal route.

What do you get when you extend the lease?

Pros for extending your lease Cons 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 leasehold enfranchisement 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. 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. 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 from SAM Conveyancing

We specialise in lease extensions, with RICS valuers for the valuation and negotiation of your premium, plus lease extension solicitors for the section 42 notice and formal or informal lease extension.

Your dedicated SAM Conveyancing Executive will guide you through the process with their insider expertise, at no extra cost to you. Arrange a call for free initial advice and to get a tailored quote.

Lease Extension Process for Leaseholders

by:

Andrew Boast

(Last Updated: 29/05/2024)

Created on:

05/01/2022

Read by:

84

17 min read

Key Takeaways

A leaseholder of a flat or a house can extend the lease of the property by law if they've owned the property for 2 years.
You can extend your lease by an additional 90 years on top of their current lease terms with a Peppercorn Ground Rent.
Leaseholds depreciate in value as the lease term reduces; faster past 80 years.
Extending the lease is often necessary to either sell or remortgage.
This can be done informally (with your freeholder's cooperation) or formally (if you are eligible for statutory enfranchisement).
The amount you pay for the extension of the lease (the premium) is determined by a lease extension valuation.
You may have to negotiate or go to tribunal if your freeholder disagrees on the lease extension premium.
It can take several months to complete, after an agreement is reached.

The Leasehold and Freehold Reform Act 2024 was passed on the 24th May 2024, but is not yet in effect and the date for this is not yet clear. We will update our content as and when the finalised legislation is published. Read more - Expected changes

How do you lengthen a lease?

There are two ways you can extend the lease on your flat:

Statutory Lease Extension Process - also called leasehold enfranchisement or formal lease extension, allows a leaseholder to extend their lease by law using the Leasehold Reform Act 1993. It adds 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. You cannot extend to more or less than an additional 90 years.
Informal Lease Extension Process - doesn't follow the statutory route, can agree any length of lease term up to 999 years, new clauses, and ground rent remains at old rate until the expiry of the pre-existing term and only falls to peppercorn for extended period, premium can be for any value and isn't governed by a set time line. This route is mainly taken by share of freeholders or shared ownership leaseholds. If you are just a leasehold then consider the Pros and Cons before choosing the informal route

For some, the informal route is a more affordable option and for those with shared ownership lease it is the only option. If you have a leasehold house the process is different so read this - Leasehold House Extension Process.

If you own a tyneside lease, you can reach a voluntary agreement with the other owner. That way, you can extend both leases, for no premium and share the legal costs between you.

4 Stages of the Lease Extension Process

Stage 1: Check you are eligible

Stage 2: Value the premium

Stage 3: Serve Section 42 Notice and Negotiations

Stage 4: Extend the lease

Whilst the process can be simplified into 4 stages, you do need to be prepared for the time it takes to extend the lease and the cost - it isn't quick and it isn't cheap, but there are tips we can give to help save time and money. At each stage we'll explain how long it'll take and what you'll have to pay - plus insider knowledge of How to successfully negotiate with your freeholder and answers to all our client's FAQs at the bottom. If you need a quick answer then feel free to call us on 0333 344 3234 (local call charges apply).

1

Check you are eligible

The lease must have been a long lease when granted of more than 21 years - most are granted with 99, 125 or 150 years from the start; 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 process, however you may be able to extend your lease informally.

The exception to the above rules are if:

your 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.

How are you funding the extension?

The big question is how are you going to fund the premium, legal fees or freeholder's costs? Are you going to remortgage, use personal savings or are you going to tie it into your sale by wither selling undervalue and letting the buyer pay for it or are you going to sell at the full price and extend the lease on completion? The time frames are strict, so whichever route you choose, make sure you have a plan in place because by missing a deadline, you might have to either wait 12 months to start the process over, or worse still be force to extend informally where a freeholder can charge what they want.

Budget your costs

2

Value the premium payable to extend your lease

From booking survey to getting your report should take no longer than 1 to 2 weeks.

You need to instruct a RICS valuer to confirm the premium payable to the freeholder to extend your lease by 90 years. 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 is incorrect (i.e. 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. Click here to see how the premium is calculated

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

Instruct a specialist leasehold extension valuer

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

Get a RICS Valuation Quote

3

Serving the Section 42 Notice

From serving the Section 42 Notice to agreeing the terms and premium 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 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.

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 extend your lease. 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.

Freeholder'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 request and accept your terms,
Agree to your request but propose alternative terms.
Not agree to your requests, giving reasons for the court to determine.
Claim the right of redevelopment - the landlord can refuse to grant the new lease if they can prove to a court that they intend to demolish and redevelop the block. This only applies to applications where the remaining period of the lease is less than five years from the date when the notice was served.

If you and your freeholder cannot initially agree on the premium/terms then you can negotiate and, depending on how far apart you are from agreeing, it might be worthwhile hiring a professional RICS valuer to assist you with negotiations, although you will have to pay a reasonably expensive hourly rate. For more information about this, please read Can't agree terms with your Freeholder?

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

From agreeing terms to completing the extension can take from 1 to 4 months.

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.

Frequently Asked Questions

REFUSE

SDLT

CALC

DIY

COSTS

SHORTLEASE

HOWLONG

TWOYEARS

WHY

Written by: Andrew Boast

Andrew started his career in 2000 working within conveyancing solicitor firms and grew hands-on knowledge of a wide variety of conveyancing challenges and solutions. After helping in excess of 50,000 clients in his career, he uses all this experience within his article writing for SAM, mainstream media and his self published book How to Buy a House Without Killing Anyone.

Reviewed by: Caragh Bailey

Caragh is an excellent writer and copy editor of books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey, property law and mortgage-related articles.

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