Lease Extension Costs

A leaseholder should consider the following factors when establishing the total lease extension cost:

  • Leaseholder's legal costs.
  • Landlord's legal costs.
  • Landlord's other costs.
  • Landlord's premium

Leaseholders commonly forget to factor in the additional costs (aside from the landlord's premium) at the outset. It's important to keep these costs in mind when negotiating the premium with the landlord.

INFORMAL ROUTE COSTS

The chart below illustrates these costs based on a premium of £15,000 agreed informally, outside of the statutory route. In this scenario, additional expected costs make up almost 15% of the total expected costs. The lower the premium, the higher the percentage of additional costs.

Total lease extension costs with a £15,000 premium:

Lease Extension Cost

If the premium is considerably lower, the additional costs become much more significant. Take a look at the pie chart below:

Total lease extension costs with a £3,000 premium:

Lease Extension Cost

In the above example the additional costs equate to almost half of total costs.

Leaseholder's legal costs

Typically a leaseholder can expect to pay on average around £700 in legal fees. On top of that, some mortgage lenders will charge an administration fee in order to deal with signing the documentation (a requirement). These fees usually don't exceed £105.


Landlord's legal costs

As leaseholders are obliged to pay for the landlord's reasonable legal fees (a statutuary right) it's likely that the landlord will not 'shop around'. This results in the landlord's legal fees being significantly higher than the leaseholder's. Expect to pay in the region of £1000 to £2000.


Landlord's other costs

Statute allows the landlord to recover other reasonable costs, such as appointing surveyor to carry out a valuation. Typical valuation fees are around £400.


Landlord's premium

The leaseholder must pay the landlord a premium for the privilege of extending the lease term. This compensates the landlord for the diminution in the freehold value, as well as lost ground rent (as usually the ground rent is reduced to nil for the remainder of the term. You may wish to instruct a professional surveyor to give you an accurate assessment of the expected premium, or otherwise rely on an online Lease Extension Calculator if you have an accurate estimate of the value of your property..


Total additional lease extension costs (informal route)

Setting aside the premium, we can see that additional costs are expected to be in the region of £2,100 to £3,200 when following the informal route.

FORMAL ROUTE COSTS

Additional lease extension costs increase significantly when proceeding through the statutory / formal route. The chart below illustrates these costs based on a premium of £15,000 set by the leasehold tribunal, after a hearing. In this scenario, additional expected costs make up almost 25% of the total expected costs. The lower the premium, the higher the percentage of additional costs.

Total formal route lease extension costs with a £15,000 premium:

Lease Extension Cost

As you can see, 25% of total expected costs are now spent on total costs. If the premium is considerably lower, the additional costs become much more signifant as illustrated below:

Total formal route lease extension costs with a £3,000 premium:

Lease Extension Cost

In the above example the additional costs equate to a huge 61% of total costs. Now let's look at how these costs are broken down.

Leaseholder's legal costs (formal route)

Costs tend to vary widely, however on average a leaseholder can expect to pay around £3,000 in legal fees if the matter proceeds to a tribunal. On top of that, there may be a mortgage lender admin fee of around £100 and a court hearing fee of £300.


Landlord's legal costs (formal route)

Each party is responsible for their own legal costs, with the exception of dealing with the section 42 notice and drawing up the agreed lease. Again, it's likely that the landlord's fees would be around £1000 to £2000.


Landlord's other costs (formal route)

Statute allows the landlord to recover other reasonable costs, such as appointing surveyor to carry out a valuation. Typical valuation fees are around £400.


Landlord's premium (formal route)

Again, the leaseholder must pay the landlord a premium for the privilege of extending the lease term.


Total additional lease extension costs (informal route)

Setting aside the premium, we can see that additional costs are expected to be in the region of £6,000 to £7,000 when following the informal route.