Act before 80! Make sure you extend your lease before it gets below 80 years. The shorter the lease the more expensive.
As of May 2024, we are still waiting for the final version of the Government’s leasehold reforms to be published. Initially there were promises to make extension cheaper and easier, as well as to abolish ground rent altogether, but successive reviews have watered down the proposals and at the time of writing the law remains the same.
If you live in a flat, it’s probably a leasehold property, meaning the land is owned by a freeholder and the lease is essentially permission to live in the premises for an agreed period of time. If you are the leaseholder and have owned the property for at least two years you normally have a legal right to extend the lease length. If you do this under the 1993 Act there will be no further ground rent payable. (See Why it’s better to go through the act)
Act before 80
Once the lease falls below 80 years, the freeholder is allowed to charge more for an extension, (see marriage value below). That’s why it’s important to extend before that.
This calculator will give an approximate cost but it doesn’t calculate the impact of an escalating ground rent (one that increases over time). You should also call a few solicitors and get some quotes. Some will include a surveyor as part of a package. Otherwise you may prefer to find your own surveyor. Their job is to determine the value of the property (and to justify it if the freeholder wants to haggle). Normally the cost of extension includes ground rent for the remaining years, for instance if 90 years remained, and your ground rent was £10 per year, the premium would be £900. Under current law this also applies to escalating rents, making some extension prohibitively expensive.
Your solicitor will then serve a Section 42 notice which freezes your lease, and the value of your property for six months. The freeholder knows the shorter your lease gets the more money they will receive, but they are legally obliged to respond to a S42 notice.
Once the lease falls below 80 years, the difference in market value between a short lease and long one becomes substantial, and the freeholder is entitled to a share, known as marriage value. (How this is calculated is controversial and was the subject of the Mundy v Sloane court case). For example if the new, long lease increased the value of the flat by £50,00, the freeholder would be entitled to £25,000. And therefore the leaseholder would have to pay a premium of £25,000 in addition to the solicitor and surveyor fees.
Why it’s better to go through the Act.
Sometimes the freeholder, or to be precise their managing agent, will offer a price for a lease extension. At first glance this may seem cheaper, as no surveyors are needed to make a valuation. But never go down this route without the services of a good solicitor to read through the new lease. There could new clauses added, such as an increased ground rent, or an escalating ground rent which doubles periodically. Under the 1993 Act ground rent is not chargeable but if you negotiate directly, whatever you agree to is legal. Other possibilities are that additional service charges or new liabilities can be sneaked in. And yes managing agents have been known to try all of the above!
For more information see these answers from Mark Chick, a practicing leasehold lawyer at Bishop & Sewell. Links go to www.leaseholdinfo.com.
Will the ground rent increase after a lease extension?
What happens if we cannot agree on how much the lease extension should cost?
I want to extend my lease. Are there any additional costs payable other than the price of the lease extension?
Do I have to go through the Act to extend my lease?
Am I a qualifying tenant for lease extension?
How long do I have to wait to extend my lease?
What happens when my lease runs out