Should I extend my lease?
Plus step-by-step guide on how to do it
Homeowners can rack up a bill of £1,000s or even £10,000s trying to extend their lease. But now, after years of pressure, the Government has set out plans to make extending a lease both easier AND cheaper – though it's not clear when these changes will take effect. This guide talks through why leases need extending in the first place, when it becomes necessary, and how to do it. Plus, check out our What is a leasehold? guide for more on how a leasehold works.
Thank you to Linz Darlington, managing director of Homehold lease extensions, for fact-checking this guide.
Looking for more home help?
We've got lots of other helpful guides and tools:
- Leasehold versus freehold: A full explainer on the differences between leasehold and freehold properties.
- First-time buyers' guide: Free PDF to get you on that first rung.
- Remortgage guide: Free PDF which has loads of remortgaging tips.
- Cheap mortgage finding: How to find the top deal for you.
- Mortgage Best Buys: Find your top mortgage deals.
- Help to Buy Equity Loan & shared ownership: Two options if you're struggling to get on to the property ladder.
Update. Overhaul of lease extensions planned
Extending a lease when it gets too short can be a complicated and stressful process, not to mention one that can leave leasehold homeowners £1,000s – and in the worst-case scenario, £10,000s – out of pocket.
But following years of pressure over these issues, the Government has finally laid out proposals to make it easier and cheaper for leaseholders to extend a lease, buy a freehold, and do away with ground rent. It's hoped these changes could save some homeowners £1,000s – though details around exactly how much leaseholders could save are still vague.
You can read more about the proposals in our 'Millions of leaseholders to get new rights' story, but in brief...
The proposals – what we know so far
Here is how the process of extending a lease will change, according to the proposals:
- All leaseholders who can extend their lease will have the right to do so by 990 years. Currently, leaseholders of houses can only extend their lease once, by a 50-year period, while leaseholders of flats can extend leases as often as they wish for a 90-year period.
- Many who extend their lease or buy their freehold will pay less BUT we do not yet know how much cheaper it'll be. A promise has been made that one of the charges involved in the cost of extending a lease or purchasing a freehold, known as 'marriage value', will be abolished. This is the amount of extra value a lease extension would add to your property, and it applies when a lease drops to less than 80 years in length (see full explanation here).
While we can't say for certain how much cheaper extending a lease will become once the changes take effect, it is expected to be in the £1,000s for many leaseholders.
- Future leases will NOT include ground rent. The Government says ground rent will be capped at zero on all new leases.
There's no set date this will be introduced – it could be years away
While this is welcome news for homeowners, there is no definitive timetable for when these proposals will become law (we'll update this guide when we know). The initial draft bill that would be written into law has been published to stop new flats being sold with ground rent, but not for the wider proposed leasehold reforms, so it could be years before these things take effect.
So the question for many leaseholders is: Should I extend my lease now or wait?
The question is not easy to answer, and it'll depend on your circumstances – for instance, whether you're looking to sell your property in the immediate future and how long is currently left on your lease. We discuss the issues you need to consider when thinking about a lease extension in the next section.
Note: From this point on, the figures used in this guide reflect how much it CURRENTLY costs to extend a lease – in other words, not how much it'll cost once the proposals have come into effect.
Why do I need to extend my lease? How it currently works
There are over four million leasehold flats in England and Wales, and it's the most common way of owning a flat. Owning a leasehold gives you the right to live in a property for a set period of time, which can be years, decades or centuries. See more on how a leasehold works and how it differs from a freehold property in our 'What is a leasehold?' guide.
A leasehold property with a decent-length lease (100+ years) can add thousands to its marketing value. Generally though, the shorter the lease (particularly under 90 years), the lower the asking price. Where a lease is considered short it can knock off £1,000s.
If a lease is under 80 years it's considered dangerous territory, and can make a property difficult to sell or remortgage if you already own it, while for buyers, lenders may be unwilling to give you a mortgage on it. This is why it can become necessary to extend your lease.
We want to sear a point on to your brain...
There is a magic number of years when leases become MUCH pricier to extend. And that magic number is:
It's in the interest of a freeholder to let your lease drop below 80 years (even by just one day). This is because at that point the freeholder will rake in the cash, as after that you will pay 50% of the property's 'marriage value', on top of the usual lease extension price.
Marriage value applies when a lease drops to less than 80 years in length, and is a cost the leaseholder must pay to the freeholder.
In rough terms, marriage value is equal to the increase in the value of a property once its lease has been extended – and the freeholder is entitled to a 50% share of this increase. So if your property increased by £10,000 in value after a lease extension – and provided your lease had been less than 80 years in length – then your freeholder would be due about £5,000.
- RED LIGHT. Lease of less than 80 years – WARNING, you're in the danger zone. You urgently need to think about your lease if it's near to 80 years. Once a lease drops under 80 years, 'marriage value' kicks in. If your lease is under 70 years, mortgages may at best get more expensive, and at worst you might struggle to get a mortgage.
Properties under 60 years in length are virtually un-mortgageable, making remortgage nigh-on impossible. Here, you'll need to talk to a specialist lease extension valuer. A lease that is this short can make a property practically unsellable. In such a situation, excellent legal advice is a must.
Lease of less than 80 years – shall I wait for the proposed changes to the leasehold system?
- Waiting for the changes to kick in could mean you end up paying less under the new extension system. However, we don't know how much this could be by to know whether it's worth waiting or not...
- If you've already got a really short lease, it's very unlikely someone will buy your property. So if you're desperate to sell then you might not have the option to wait to extend.
- If you're not planning on moving then it might be worth the gamble waiting until the changes kick in. On the other hand, if you don't extend you might struggle to remortgage and get stuck on your lender's expensive standard variable rate.
- AMBER LIGHT. Leases between 80 and 89 years – it's really time to consider your options. Everyone, whether selling or staying, should really start thinking about extending their lease once it gets to 83ish years. You should probably begin considering it even sooner than that if you're able. Where a lease has 81 or 82 years left, the cost of extending can still increase by £100s or even £1,000s, as the 80-year mark is so close and the need to extend is more urgent (extending a lease can take time too – so don't leave it until the last minute).
Lease between 80 and 89 years – shall I wait for the proposed changes to the leasehold system?
- If you're looking to sell in the near future there's an incentive to extend sooner if your lease is ticking down to 80 years, otherwise you risk not getting what price you're asking for the property. Having said that, if you do extend now, what you pay for the extension might be more than if you wait for the new changes to come into effect.
- If you're not looking to move any time soon, you could wait. In this situation you might feel more inclined to wait until the changes kick in before extending, as you don't need to impress any potential buyers. However, again, we're not sure how much the changes will ultimately reduce the cost of extending by. It could be that the cost is capped at a sum more expensive than what you'd pay if you extended now.
- GREEN LIGHT. Lease of 90+ years in length – no need to worry (yet). If you've more than 90 years remaining, the value added to your property of extending the lease may only be a smidgeon more than your costs – see potential added values in our table. (Though, of course, who knows what little things can sway people to pay more for one property over another?)
Lease of 90+ years – shall I wait for the proposed changes to the leasehold system?
- Whether or not you're looking to sell in the near future, it shouldn't hurt if you want to wait until the changes to extending a lease kick in before thinking about your own lease situation. This is because a lease length of 90, 95 or 100+ years shouldn't have any negative impact on your selling price, so extending your lease right now may not even be relevant.
Who can extend their lease under the current system?
To be legally entitled to extend your lease, you need to have been registered as the owner of the property on the Land Registry for at least two years.
The registration date usually happens a few days to a few months after you complete the purchase of your property. But be careful, if you add a partner or a friend to the title deeds later down the line, this two-year clock resets.
You won't have the right to extend your lease if you originally bought your property through shared ownership and haven't yet increased your share of the property to 100% (known as staircasing).
You don't need to have lived in the property for two years, just owned it.
How long can I extend a leasehold FLAT by?
Under the 1993 Leasehold Reform Act, most flat-owners are legally entitled to get 90 years added to their lease at a fair market price. Remember, you'll need to have been the registered owner of your property for at least two years to qualify. Also:
- There is no restriction on how many times the lease of a flat can be extended.
- Extending will have the benefit of reducing your ground rent (if you have any) to zero.
How long can I extend a leasehold HOUSE by?
Freehold houses come under different law. You usually only have the right to extend your lease by 50 years, rather than 90 years with flats. The freeholder could grant more than 50 years if they want, but it's up to them.
The legislation is even trickier than with flats, so seek advice from a solicitor with experience in the area. Typically houses are sold on a freehold basis, but in recent years new-build houses have been sold, controversially, as leaseholds.
As the laws on leasehold houses are more restrictive, most owners tend to buy their freehold rather than extend their lease. For full info on leasehold houses, go to the Leasehold Advisory Service site.
Often a building's flat-owners are legally entitled to buy the freehold and take over the building's management between them – an arrangement known as 'share of freehold'. It's usually then easy and cheap to extend the lease of the property to 999 years at the same time, but obviously taking over a building's management entails more responsibility on your part.
As a rough rule of thumb, the cost of a share of the freehold for one flat (excluding legal fees) is similar to extending a lease by 90 years. Alternatively, you may still have a legal right to manage your building even if you're unable to buy the freehold.
You'll need at least half of the flat owners in the building to take part if you want more control of your building. For more information on how the process works, see the Leasehold Advisory Service website.
How much will it cost to extend my lease right now?
The price depends on several variables, including the flat's value, the lease length and ground rent. It also depends on your negotiations. See table below for some examples.
Bear in mind leasehold law is hideously complicated so costs can vary dramatically.
For a rough estimate, ask other residents in your building how much their extensions cost (if they've had it done), although this should always be taken with a pinch of salt as prices vary.
Other costs to factor in
On top of the cost of the lease extension itself, you pay a few other fees:
Your valuation, negotiation and legal fees. You'll need to pay for a valuer to estimate the price of your lease extension and negotiate with your freeholder on your behalf. You'll also need to pay a lawyer to review your updated lease and register it at the Land Registry. You can either use a separate valuer and lawyer, or use a company that does it all under one roof.
Your freeholder's valuation and legal fees. You'll also need to pay the freeholder's reasonable costs and valuation fees – and often these aren't very reasonable! Ask your solicitor whether they have experience challenging these to ensure you aren't paying too much.
TOTAL COST FOR ALL OF THE ABOVE: Around £4,000-5,000.
Importantly, this doesn't include the freeholder's costs for negotiating the price or for dealing with court or First-Tier Tribunal applications in case you end up having to take it that far.
Stamp duty. While stamp duty does apply to lease extensions, it's unlikely that you'll need to pay it. That's because if the lease you are extending is the lease on your only main residential property, then you'll be charged a rate of 0% stamp duty on the first £125,000 of the cost of the extension. So, for example, if the cost of extending your lease was £10,000, you'd pay nothing in stamp duty.
If you own more than one residential property however (in other words, you're extending the lease on a second home), stamp duty is normally charged at a rate of 3% – though the premium to extend your lease must cost more than £40,000 in the first place for this 3% rate to apply. If the premium is above £125,000, then the rate of stamp duty will be higher than 3%.
Typical TOTAL cost to extend a lease
The tables below show how much it might cost in total to extend a lease of a flat, though do note that these figures are estimates and costs can vary by £100s or even £1,000s.
|Extension costs and added value from Homehold, based on Upper Tribunal Guidance. Estimated for a flat worth £200,000 once the lease is extended, with £100 ground rent rising by £100 for each 33 years of the term. These are just estimates and can vary wildly – they are not a substitute for valuation advice. (1) This includes your valuation, negotiation and legal fees, as well as your freeholder's valuation and legal fees. It does NOT include any stamp duty cost.|
|Extension costs and added value from Homehold, based on Upper Tribunal Guidance. Estimated for a flat worth £500,000 once the lease is extended, with £100 ground rent rising by £100 for each 33 years of the term. These are just estimates and can vary wildly – they are not a substitute for valuation advice. (1) This includes your valuation, negotiation and legal fees, as well as your freeholder's valuation and legal fees. It does NOT include any stamp duty cost.|
As the tables demonstrate, the cost of extending a lease rockets once a lease drops below 80 years in length. The difference between extending a lease 85 years in length and one 79 years in length can be in excess of £8,000.
Beware of 'informal deals'
Lots of freeholders will encourage you to extend your lease informally with a promise of a cheaper and quicker deal.
They do this because it provides them with an opportunity to only increase your lease back up to 99 years and to whack up your ground rent. They can also make other changes to your lease – like adding the requirement for you to pay a fee if you want to keep a pet or let your flat.
Don't fall into this trap!
If you stay in your property, you'll have to start thinking about extending your lease again in a few years. Even if you're thinking of selling, at the very worst these informal deals can make your property unsellable.
How to pay for it
Hopefully, extending your lease will ultimately add value, but don't take out credit cards or loans to do it.
You may be able to borrow more on your mortgage to pay for it, but if you're considering this then it might be better to wait until your introductory deal (eg, if you're on a two-year fix) has come to an end first so that you can more easily review your entire borrowing and avoid any potential early repayment charges.
If you can't wait for your current deal to end you could opt for a further advance from your current lender, but this additional borrowing will likely be on a different rate to your main mortgage.
Step-by-step guide to extending your lease under the current rules
The lease extension process can go slower than a year in prison, so if you're thinking of selling your home, start early. Though it's worth noting that the clock stops counting once you serve the notice, so if you serve it at 80 years, the lease won't tick down to 79.
Just a note that in this guide, the word freeholder means the person who flat owners pay service charge to (otherwise known as the 'landlord'). Sometimes landlords pay rent to an even bigger company that owns the freehold and is legally known as the 'freeholder'. We've chosen to use the word 'freeholder' instead of landlord in all cases to avoid confusion.
Step 1. Find a solicitor
The lease extension process can be long, complicated and contentious – it is well worth having professional support throughout the process. A good place to start is the Association of Leasehold Enfranchisement Practitioners' website, which lists solicitors specialising in the field
A solicitor will usually direct you to find a separate valuer to do certain bits of the process, but there are companies which manage the entire process (including legals and valuation) from start to finish, like Homehold.
There can be huge cost differences between different conveyancers, so ensure you test the market. The less the freeholder tries to drag it out, the cheaper your legal costs.
And remember that these professionals needn't be based nearby. If you live in an expensive city such as London, out-of-town professionals could be much cheaper. Ask them how much experience they have working in leasehold and whether their fee is fixed or an estimate.
Step 2. Value the lease
Professional valuation advice is crucial. A specialist valuer will give the best indication of what you should pay for the lease extension and crucially build up a really solid base of evidence which they can use to negotiate with your freeholder.
You should use the same valuer to negotiate with your freeholder as well – they'll have collected the evidence so will be able to negotiate most effectively.
Again, the Association of Leasehold Enfranchisement Practitioners' website is good place to find a valuer, but if you'd prefer a more integrated service that includes both a solicitor and valuer then Homehold is an option.
Lease extension valuations typically cost about £400 to £900, and unlike a valuation for the purpose of marketing or mortgaging the property, they're usually done remotely.
3. Negotiate the price
Negotiations will start by a formal notice being served with your opening offer of what you want to pay for your lease extension.
The freeholder will now ask for a deposit. This will either be 10% of the lease cost stated in the notice or £250, whichever is greater.
At this stage, the freeholder will hopefully accept your offer. If not, they'll come back with a counter offer, and your solicitor will hand back to your valuer to negotiate back and forth with the freeholder.
4. If you can't agree, you can apply to a tribunal
If you and the freeholder are in a stand-off over the price of the lease extension, you can apply to a First-Tier Tribunal to have the matter settled. Your legal and valuation fees will always be much higher if you go to the First-Tier Tribunal but the freeholder will have to incur these costs too. This is why it is so unusual to go this far.
Once you apply, you usually need to wait about four months for a hearing and usually it is your valuer who will make your case. After that, the First-Tier Tribunal simply writes to you to say how much it's decided you'll pay for the extension
The Tribunal Service publishes lists of past First-Tier Tribunal lease extension decisions, though you will have to be dedicated to wade through the legal jargon.
Here's a quick Q&A on extending your lease. If you've further questions, please add them to the Extend Your Lease discussion.
As long as the property is registered, for a small fee, you can inspect the Land Register and obtain copies of the entry relating to the freehold. This should give you all the details you need to track down the freeholder who can grant the lease extension - your solicitor will help with all this. You can also try and find their details via rights to information under Landlord and Tenant legislation.
If, despite your best efforts, you are unable to locate the freeholder, your solicitor can apply to the county court for an order that means you can extend the lease. You'll need to prove to the court that you did your best to try and track them down. Once you've done this, you'll then be able to get the price fixed at a First-Tier Tribunal.
The shorter the lease, the cheaper the property. Some properties with super-short 20-40 years leases sell at bargain basement prices. It's more common in swanky parts of London.
However, if you've owned the property for two years, you've a legal right to extend the lease. Extending short leases is pricey – we're talking tens of thousands – but sometimes the combined cost of the cheap property and the lease extension adds up to less than you could flog it for once it has a lease which has been extended by 90 years.
It also mean that you could end up paying less stamp duty too.
Who can do this?
Though occasionally lucrative, this technique is tricky. You'll need to be cash buyer looking for an investment, as it'll be nigh-on impossible to get a mortgage on a short-lease property.
This is an advanced way investors make cash from buying and selling properties. Many people who do this are ex-solicitors and accountants; you can get burned if you don't know what you're doing.
How it works
A quick tip to find short-lease properties is to pop the following into Google: site: rightmove.co.uk "short lease".
You'll then need to seek valuation advice on how much it will cost to extend (the leasehold calculators won't work below 60 years). Excellent valuation advice is a must.
Leases with less than 70 years left to run should be approached with caution. Worst case scenario is that you are left with a lemon, a short leasehold property that you can't afford to extend the lease on. As the lease shortens, the flat's appeal to potential buyers reduces.
The Leasehold Advisory Service has a wealth of free advice on leasehold law, including service charges, extending your lease, buying the freehold, right to manage and applying to the First-Tier Tribunal. You can also get advice in person or by calling 020 7383 9800.
Another useful source of info is the Government's Leasehold site.
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