If you own a flat or a leasehold house in the UK, you don’t own the property outright forever. You own a lease, which is the right to occupy the property for a set number of years. As this term gets shorter, the value of your property decreases, and it can become difficult to sell or remortgage.
The solution is a lease extension. This is a legal process that adds more years to your lease, securing your home’s value for the future. But when should you do it, and how does it work? This guide explains everything you need to know.
Understanding Leasehold and Why Lease Length Matters
First, it’s important to understand the fundamental difference between freehold vs leasehold properties. As a leaseholder, you have a contract (the lease) with the freeholder (or landlord), who owns the land the property is built on. This lease diminishes in length every year.
A long lease (e.g., 125 years or more) is not an immediate concern. However, once the remaining term starts to fall, it can cause significant problems:
- Devaluation: The property’s value will decrease, with a sharp drop once it falls below 80 years.
- Mortgageability: Most mortgage lenders are reluctant to lend on properties with fewer than 80 years left on the lease, making it very difficult for you to remortgage or for a potential buyer to get a mortgage.
Dealing with short leases is one of the most common challenges in residential conveyancing, and for anyone trying to sell, a key part of what a conveyancer does for the seller is to identify and advise on resolving this issue before it derails a sale.
The Golden Rule: Act Before 80 Years
If there is one thing to take away from this guide, it’s this: do not let your lease drop below 80 years.
The moment the remaining term on your lease dips below 80 years, the cost of extending it increases substantially. This is due to a legal concept called “marriage value”.
Marriage value is the increase in the property’s value that results from extending the lease. Under the law, the freeholder is entitled to 50% of this increase. This is an additional cost on top of the standard premium for the extension. Once the lease is below 80 years, this marriage value payment kicks in, making the process significantly more expensive.
How the Lease Extension Process Works
There are two ways to extend your lease: the informal route and the formal (statutory) route. Knowing when to instruct a conveyancing solicitor is vital, as their advice will help you decide which path is best for you.
1. The Informal (Voluntary) Route
You can approach your freeholder directly at any time and ask if they are willing to negotiate a lease extension.
- Pros: It can potentially be faster and cheaper, as there are fewer legal formalities. The terms are flexible and can be agreed upon between you and the landlord.
- Cons: The freeholder is under no obligation to agree. They can set whatever premium they like and may insist on unfavourable terms, such as an increase in your ground rent. There is no security, and they can pull out at any time.
2. The Formal (Statutory) Route
If you have owned your property for at least two years, you likely have a legal right to a lease extension under the Leasehold Reform, Housing and Urban Development Act 1993.
This formal route gives you the right to:
- Add 90 years to your existing lease term.
- Reduce your ground rent to zero (known as a “peppercorn” rent).
The process follows a strict legal timeline:
- Get a Valuation: First, you must hire a specialist surveyor to calculate a realistic premium (the price) for the extension.
- Serve the Section 42 Notice: Your solicitor will prepare and serve a formal legal notice on the freeholder. This notice officially starts the process and states your proposed premium.
- Landlord’s Counter-Notice: The freeholder has two months to respond with a counter-notice. They will either accept your offer or propose their own, higher figure.
- Negotiation: A period of negotiation begins between your surveyor and the freeholder’s surveyor to agree on a final price.
- Tribunal Application: If an agreement cannot be reached, your solicitor must apply to the First-tier Tribunal (Property Chamber) within six months of the counter-notice. The Tribunal will then determine the fair price. If negotiations fail, this can become a type of conveyancing dispute.
Why You Need an Expert Solicitor
The lease extension process is complex, with strict procedures and deadlines that must be met. A mistake, such as an error in the Section 42 Notice, can invalidate your claim, forcing you to wait another year before you can start again.
This is why you should use a trusted solicitor who specialises in leasehold matters. They will manage the entire process, protect your legal rights, and ensure the best possible outcome. For prospective homeowners, a crucial aspect of what a conveyancing solicitor does for the buyer is checking the lease length and advising on the implications before a purchase even completes.
Ready to Secure Your Property’s Future?
Extending your lease is not just an expense; it is an essential investment in your property. It protects its value, makes it mortgageable, and provides you with long-term security.
If your lease is approaching the 80-year mark or you would like to discuss your options, contact our expert residential property team today for clear, practical advice.
