How To Extend Your Leasehold

A lease is an agreement allowing someone to occupy a property but not the land. That means they can buy the property but must pay ground rent to the landowner. Extending the lease early means the property value is likely to increase and makes it possible to sell it. Not acting early increases the cost of renewing the lease and makes it more difficult to sell it in the future.

The conveyancing team at Eatons Solicitors explains how to extend a lease and tells us more about the process.

Why Consider a Leasehold Extension?

When the term of the lease drops below a key threshold (usually around 80 years), the value of it decreases. Moreover, a property on land for which the lease is under 80 years is harder to sell and obtain mortgage finance. Therefore, protecting the homeowner’s investment.

When Is the Best Time to Extend a Leasehold?

When extending a leasehold, time is of the essence. If it falls below 80 years, then the leaseholder must pay the marriage value to the freeholder. This increases the land rent because the freeholder is entitled to 50% of the marriage value. Therefore, making the lease extension more expensive.

However, to avoid this pitfall, it is worth mentioning that homeowners are entitled to a statutory lease extension once they have owned the property for 2 years. This allows them to add another 90 years to their current lease. Under these rules, the ground rent is reduced to zero (peppercorn rent). However, it is proposed under the Leasehold Reform Act 2024 that homeowners can exercise their right to end their lease immediately upon purchasing a leasehold property rather than wait the 2 years. However, from February 2025 the Leasehold and Freehold Reform Act 2024 removed the requirement that a flat owner to have lived in the property for 2 years. It is also proposed (but not introduced) that homeowners can extend their lease to 990 years.

To avoid paying a premium on a leasehold extension, conveyancers will always advise prompt action.

How Do You Extend A Leasehold?

1. Serve a Section 42 to the freeholder: this is a formal application to extend a leasehold that the solicitor sends to the landlord. It presents the landlord with the terms of the lease extension.

2. The Counter-Notice: the landlord has 2 months to respond to Section 42. During this time, they must decide whether the lease can be extended and whether they agree with the proposed terms.

3. Negotiate Premium and Terms: the leaseholder and the freeholder negotiate the lease's length and the ground rent. Other aspects they discuss include maintenance and service charges, use clauses, and rent reviews.

4. Completing the legal process: The freeholder's solicitor drafting the agreement. Then both parties will negotiate amendments to it including rent reviews, repairs, and subletting. Once updated terms agreed, both parties are to sign the new lease.

How Much Does Extending a Leasehold Cost?

The costs associated with extending a leasehold depend on numerous factors. These include the property's value, the current lease length, and the ground rent. As mentioned above if there is less than 80 years remaining on the current lease, the leaseholder must pay the marriage value.

However, under the statutory review process, the ground rent is reduced to zero and the lease is extended by 90 years. That is why it is crucial to renegotiate a lease as soon as possible.

Why Is It Important to Get Legal Advice?

When negotiating a leasehold extension, it is important to get legal advice. This allows the leaseholder to negotiate favourable terms. At Eatons Solicitors, we are happy to help homeowners through the lease extension process. Our conveyancing team has the knowledge and experience to ensure a fair lease extension valuation.