Leasehold Extension: Pros and Cons

Overview Pros and Cons Qualification Valuation Procedure Alternatives Services & Costs
Extend Your Lease

For leaseholders, a property with extended lease represents a secure family inheritance. Such properties are also more marketable as it can be difficult to secure a mortgage against a lease of less than 70 years.

From a freeholder's perspective the process enables them to realise value from their asset without surrendering the freehold.

Lease extensions do not require participation of other leaseholders in the building.

The terms of a lease extension may be agreed informally. Alternatively, qualifying leaseholders can compel the freeholder to grant a lease extension via the statutory process.

Whichever route is chosen, it is critical that both sides have an accurate valuation of the cost of lease extension.

Statutory Lease Extension

  • The cost of the lease extension is fixed at the date on which the leaseholder(s) serve the freeholder with their legal Notice of claim.
  • The lease will be extended by a further 90 years.
  • The new lease should be on the same terms as the existing lease, subject to modifications to update the old lease, modify a defect or to update a term of the lease where the law has changed.
  • 'Peppercorn' Ground Rent will be charged under the new lease, essentially meaning that the lease becomes rent free.
  • If the cost of the lease extension, terms of the new lease or cost of the freeholder's legal/surveyor's fees cannot be agreed, the matter can be referred to the First-tier Tribunal (Property Chamber) for arbitration.
  • The statutory route can take several months to complete.
  • If a leaseholder withdraws from the statutory process they may then become liable for the freeholder's costs up to that point.

Informal Lease Extension

  • The cost of the lease extension may increase during the process - particularly if negotiations are protracted.
  • The number of additional years added to the lease may vary depending on negotiations.
  • Additional clauses may be added to the new lease, or existing clauses altered. These may be onerous to the leaseholder.
  • If a deed of surrender and re-grant is signed prior to 30 June 2022, the Ground Rent may be increased.
  • The freeholder will likely require that their legal and/or surveyor's fees be paid by the leaseholder. These costs are unlikely to be negotiable, or refundable if the transaction does not complete.
  • If a leaseholder proceeds down the statutory route after failed informal negotiations, they may be required to pay additional statutory legal/surveyor's costs
  • The process can be concluded relatively quickly, although not if negotiations fail or either party withdraws from the transaction.

 Lease Extension Overview

Lease Extension Qualification