Extending your leasehold
If you own a leasehold property – usually a flat – you’re effectively leasing your home from the freeholder. The length of your lease can be anything from 40 years to 999 years, and you can keep extending it by paying to increase the lease length. Generally, the longer the leasehold, the more valuable the property.
If you own a leasehold property – usually a flat – you’re effectively leasing your home from the freeholder. The length of your lease can be anything from 40 years to 999 years, and you can keep extending it by paying to increase the lease length. Generally, the longer the leasehold, the more valuable the property.
Why do I need to extend my lease?
A short lease can significantly devalue a property and make it almost impossible to get a mortgage.
Once you’ve owned your property for two years, you have the right (under the Leasehold Reform Housing and Urban Development Act 1993) to add a 90-year lease extension to the remaining time on your lease. So, if you have 75 years remaining on your lease, you could extend it to 165 years.
While this might seem like a very long time, having a long leasehold can add thousands of pounds to the value of your property.
Find out the difference between leasehold and freehold in our guide.
Should I extend my lease?
A lease extension can be expensive, so look at the pros and cons before you start the process. Generally, if your lease is less than 90 years, you might want to consider extending it. This will increase your home’s value, make it easier to get a mortgage and make selling up simpler if you decide to move.
If your lease is for more than 90 years, you probably don’t need to be as concerned about a lease extension. Although, adding more years might help to lower your ground rent.
You need to make sure the cost of extending your lease will give you a good return on investment in the future – but make sure you won’t be overstretching yourself by paying the fees now.
When to extend my lease?
You only really need to look at extending your lease once it gets down to around 85 years. When you decide to extend depends on how long the lease was for when you bought the property, and how long you’ve been the owner.
Under 80 years, leasehold properties start dropping in value and it becomes a lot more expensive to get a lease extension. This is because you’ll have to pay the property’s ‘marriage value’ – the additional market value you’ll add to the property by extending the lease – as well the normal extension costs.
How much does it cost to extend a lease?
There are lots of different factors that affect how much you’ll pay to extend your lease, including:
- the property’s value
- the number of years remaining on the lease
- the annual ground rent
- the value of any property improvements paid for by the leaseholder.
Lease extension costs include:
- the premium (the amount charged for the lease extension)
- legal advice (your solicitor’s fees)
- lease extension valuation report (by a surveyor)
- your freeholder’s costs (for their legal and valuation fees)
- stamp duty (over £125,00)
- Land Registry fees
Because it’s somewhat subjective, you might be able to negotiate the overall cost. Your solicitor will be able to help you with this.
Lease renewal or extension isn’t a regular payment, like a mortgage. Use the Leasehold Advisory Service’s (LAS) lease extension calculator as a guide to how much extending your lease may cost.
It’s important to note that you’ll be responsible for your own and your landlord’s legal costs and valuation fees - whether you complete the lease extension or not.
So make sure you can afford all the various costs before you start the process of extending your lease.
The lease extension process
- Let the freeholder know that you’re looking to extend your lease – this will give you both time to get together all the documents you need.
- Appoint a solicitor – make sure you compare costs and only use someone who’s part of the Association of Lease Extension Practitioners (ALEP).
- Appoint a valuation surveyor – it’s a good idea to find someone with experience in leasehold extension legislation.
- Serve the freeholder with your tenant’s notice to trigger the legal procedure – from that point, you’ll be liable for the landlord’s legal/valuation costs.
- Pay the deposit (if required) – this will be either £250 or 10% of the lease cost, if more than £250.
- Agree a price with your freeholder – your solicitor will handle negotiations on your behalf.
- Sign the new lease – make sure you’re aware of any new terms – and pay the extension cost.
The whole process usually takes between three and 12 months.
Do I qualify as a leaseholder?
To extend the lease on your property, you need to be a qualifying leaseholder – so you must have owned a leasehold property for two years or more. The lease must be a long lease, originally for a period of more than 21 years.
You won’t qualify if your property has a business or commercial lease, or if your landlord is a charitable housing trust.
Should I buy the freehold?
It might seem a lot simpler to buy the freehold of your property, so you don’t have to worry about extending your lease. However, buying the freehold is a complicated and expensive legal process, which might not make financial sense for you.
You also need to get the majority of leaseholders within your building to agree to buy a share of the freehold. That means over half of the people who own a flat in your building.
What’s the difference between leasehold and freehold?
- A leasehold property is owned for a fixed period of time under a legal agreement with a landlord.
- A freehold property is when a home, including its land, is owned outright, on a permanent basis.
Find out more in our guide to leasehold vs freehold.
Do you have to own and live in the leasehold property to renew the lease?
No, you just need to own the leasehold property to get an extension – you don’t have to live there. This means you can rent the flat to someone else, but you’ll be responsible for maintaining the lease of the property.
What happens if I can’t agree a price with the freeholder?
If you can’t agree on a price after negotiating with your freeholder, you can apply to the First Tier Tribunal (Property Chamber). They handle applications and appeals relating to disputes over property and land.
The Tribunal will consider both sides and implement a deal. However, this involves extra legal costs and time, so it’s more of a last resort if you really can’t reach an agreement.
Should I buy a property with a short lease?
Properties with short leases can be tempting because they’re relatively cheap, but you need to factor in that you’ll have to extend the lease before you can get a mortgage. You may also need to pay cash for the property, if the lease is under 60 years. Weigh up whether the asking price plus the lease extension cost really make the property a good deal.
Can I get a loan to pay for my lease extension?
You might want to consider extending your mortgage to pay for a lease extension. You’ll need to have spare equity and be able to afford the increased monthly repayments, but extending your mortgage will keep all your property costs together under one loan.
Alex Hasty - Insurance comparison and finance expert
At Compare the Market, Alex has had roles as Commercial Associate Director, Director of Trading and Director of Growth. He’s currently responsible for the development and execution of Comparethemarket’s longer-term strategic options, ensuring the right breadth of products and services that meet customer needs.