To extend the lease of a flat, a leaseholder has two options:
- An Open Market/Informal Lease Extension - where terms are agreed privately between leaseholder and freeholder;
- A Statutory Lease Extension - being a lease extension under the legislation
The two routes at a glance:
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Open Market/Informal Lease Extension |
Statutory Lease Extension |
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Do I need to have owned my property two years to start the lease extension process? |
No |
No |
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What is the lease extension length? |
This depends upon what is agreed with the Landlord
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Currently, an additional 90 years to the existing lease term |
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Will I have to pay for my Freeholder’s legal fees? |
Highly likely, but dependent on negotiation |
Yes |
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What premium will I pay to extend my lease? |
This depends upon what is agreed with the Landlord
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An amount calculated in accordance with the legislation and negotiated by each party’s valuer |
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After extension, will my ground rent automatically be reduced to a peppercorn (‘£0.00’)? |
No, the Landlord can either choose to reduce the ground rent to a peppercorn or keep it as per the existing lease however the ground rent for the extended term will be a peppercorn |
Yes |
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Do I have to give the Freeholder a formal notice to extend my lease? |
No |
Yes |
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Do I need my Freeholders agreement to extend my lease? |
Yes |
No |
When should a lease extension be considered?
A leaseholder can extend their lease at any stage but should certainly consider extending before the lease term reaches 80 years.
This is because of the concept called ‘Marriage Value’, which is a multiplier added to the cost of the premium if the remaining lease term is less than 80 years. This can increase the cost to extend a lease significantly.
Below is a detailed explanation of each route.
Statutory Lease Extensions
One route that leaseholders can choose is a Statutory Lease Extension under the Leaseholder Reform, Housing and Urban Development Act 1993, as amended by the Freehold and Leasehold Reform Act 2024, and this is sometimes known as the formal route.
The current rules for Statutory Lease extensions
To qualify for a statutory lease extension, the following requirements must be met:
- The lease must be a long lease, originally granted for more than 21 years.
- The landlord cannot be a charitable housing trust and your flat is provided as part of the charity’s work.
- It cannot be a business or commercial lease
The premium paid to the freeholder is calculated and negotiated by valuers instructed by both parties.
The right is to add 90 years to what is left on the existing lease at a ‘peppercorn rent’. A peppercorn rent means that no ground rent is paid.
The formal procedure is started by the service of the Tenant’s Notice on the landlord (the Tenant’s Notice) and it then follows a prescribed route.
The landlord must serve their counter-notice by the date stated in the tenant’s notice which must be at least 2 months after the date of the Tenant’s Notice.
After the landlord’s counter-notice is served, if you and the landlord cannot agree on the price or the format of the new lease you or the landlord can apply to the tribunal for an independent decision on the issue. There is a negotiation period of between two and six months. After the first two months of the negotiation period you can to apply to the tribunal.
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Advantages of Statutory Lease Extensions |
Disadvantages of Statutory Lease Extensions |
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Legal protection: The leaseholder will pay a fair premium dictated by valuers and no onerous clauses can be added by the Freeholder.
Ground rent: Future ground rent is reduced to a peppercorn.
Consent: Agreement from the Freeholder for the lease extension is not required.
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Time: The whole process takes time, leaseholders will have to wait for a response to their initial notice.
Costs: The legal costs to be incurred a likely to be higher with this route.
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Open Market/Informal Lease Extensions
Another route that leaseholders can choose is the Open Market route, this is sometimes known as the informal route.
If you decide to try to negotiate a lease extension, there are no rules and your landlord could refuse to extend your lease, or set whatever terms they like.
There are no formal requirements for an Open Market extension. An extension is achieved by Leaseholder and Freeholder negotiating and agreeing all terms.
The premium can be one of the major points of negotiation with Freeholders typically trying to maximise the value of their asset. Under this route any amount can be agreed by negotiation, or sometimes the freeholder will make a “take it or leave it” offer where negotiation is not permitted by them.
Lease extensions via this route do not automatically reduce the ground rent to a peppercorn. However, this option is available if both parties agree. Importantly, ground rent cannot be increased beyond the level that is within the leaseholders existing lease and the ground rent for the extended term has to be a peppercorn.
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Advantage of Open Market Lease Extensions |
Disadvantage of Open Market Lease Extensions |
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Speed: An open market agreement may be quicker than the statutory process if both parties are cooperative.
Terms: The leaseholder may have more scope to negotiate additional terms, such as rent adjustments or modernised clauses.
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Risk: There is no legal framework to ensure fairness, so leaseholders may need professional advice to avoid agreeing to unfavourable terms.
The freeholder can withdraw at any stage up to completion. Considerable time and money may have been spent agreeing the terms of an unsuccessful extension.
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The Leasehold and Freehold Reform Act 2024
The Leasehold and Freehold Reform Act 2024 was passed in May 2024 and brought about changes to statutory lease extension. It is important to note that this new Act has not yet been implemented by the government.
The following changes to statutory lease extensions:
- Lease extension length: The 90-year extension will be increased to 990 years.
- Abolition of Marriage Value: The new legislation intends to abolish marriage value and alter the calculation for lease extension premiums with the aim to lower the premium payable by leaseholders.
- Freeholder’s Costs: Leaseholders may no longer have to pay the freeholder’s reasonable legal and valuation costs
Get Expert Legal Advice
If you are considering a lease extension, now could be the time to assess your options. Seeking professional advice to achieve a lease extension is highly recommended to navigate these challenges effectively. If you need advise, please contact Nick Leedham, Partner and Head of Residential Leasehold at Coles Miller Solicitors.
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