How to extend a lease

How to extend a lease;

If you're here, it's likely that the term on your lease is at a point where it needs extending. If you're not sure if it's the right time to extend your lease, consider reading when to extend a residential lease .

There are two methods of extending a lease:

Informal Route Lease Extension

Formal Statutory Route Lease Extension

The informal route is the most common way to extend a lease. Around 9 out of 10 lease extensions complete via this method. Any leaseholder following either methods should consider the following steps on how to extend a lease, in this order:

  1. Get a rough idea of what your expected lease extension costs are likely to be, including:
    1. Calculating the lease extension premium
    2. Landlord's valuation fees (£300 - £400)
    3. Legal fees (£600-£800 through the informal route)
  2. Contact the landlord or management company to inform them directly that you are considering extending your lease. The landlord will either (in the order of the most likely scenario):
    1. Ask you to pay for their surveyor's fees so that they can instruct a professional to carry out a valuation. Usually £300 - £450. If this is the case, remember that the valuer is chosen and instructed by the landlord, so it is likely that the valuation report will be in the landlord's best interests, not yours - so it shouldn't be accepted at face value. At this stage you could instruct your own valuer or use an online calculator to give you an estimate, giving you a basis to commence negotiations
    2. Ask you to serve a section 42 notice making a formal offer for an additional 90 years with nil ground rent, before they will consider the matter. After this the landlord will serve a section 45 counter notice within two months, with a counter offer. Alongside the notice, the landlord can demand that you allow entry to the flat to allow for a surveyor to carry out a valuation. Statute puts an obligation on the leaseholder to pay the landlord's reasonable valuation fees.
    3. Provide you with an offer. The offer may be for the statutory entitlement of an additional 90 years with ground rent reduced to nil, or a variation of this. Some landlords prefer to keep charging a ground rent and offer to extend the lease by a shorter term. This allows the freeholder to retain an investment in the freehold, as it will still be valuable, with the leaseholder needing to extend again in the future. We strongly advise against accepting such offers, but for some leaseholders this may be the only affordable solution, as the premium will be lower to reflect the less valuable deal.
  3. Instruct a solicitor specialising in lease extensions to complete the formalities as soon as you reach an agreement with the landlord. If you cannot reach an agreement, either directly with the landlord or via your own appointed valuer, move onto step 4.
  4. Instruct a solicitor to initiate the formal route
    1. If the section 42 notice has not been served, it should be served immediately, as above
    2. Prior to 6 months after the date of receipt of the section 45 counter notice from the landlord, an application to the First Tier Tribunal should be made. Not doing so will mean that you lose your right to extend the lease under the section 42 notice and you will then be responsible for the payment of the landlord's reasonable legal and valuation costs to date.
    3. Whilst the application is proceeding through the tribunal, attempt to continue negotiations with the landlord. It may take several months between making the application and the tribunal hearing, allowing time to negotiate. Whilst the application continues, legal costs are expected to increase substantially for both the leaseholder and landlord, so an early agreement is often sought by both parties.