Flat Extend Lease

All articles

Ashley Connell

Edited by Ashley Connell

Leasehold Enfranchisement Solicitor at Hetts

Negotiating Lease Extension Premiums

The negotiation process normally commences immediately after the freeholder has served a Section 45 Notice, which is a formal response to a leaseholder's Section 42 Notice

Who qualifies is important

Negotiation of a Lease Extension

Although negotiations nearly always take place, unfortunately there is no obligation on either party to enter into negotiations, it is purely voluntary. One party cannot force the other to enter into negotiations.

A court or trinbunal would not deem a refusal to negotiate as unreasonable behaviour. Each party is therefore relying on the good nature of the other to enter into negotiations with the aim of avoiding a tribunal application, which would increase costs.

How long do I have to negotiate a lease extension premium?

After the service of a counter notice by the freeholder, there is a maximum period of 6 months to negotiate the lease extension premium. The relevant authority on this is Section 48(2) Notice. Missing this deadline would be an expensive mistake for the leaseholder as they would be deemed to have withdrawn their application, can't make another application for at least 12 months and even worse, have to pay the freeholder's aborted legal and valuation costs.

Key factors for negotiating a lease extension premium

  • Length of remaining lease
  • Ground rent compensation
  • Loss of reversion value to the freehold title
  • Capitalisation rates
  • Deferment rates
  • The Marriage Value
  • The value of the flat as evidenced by comparables

Successful lease extension negotiations

Leaseholders must approach the negotiation of a lease extension premium with a pragmatic mindset. A favorable outcome would typically involve securing a mid-range value as determined by their valuation, rather than aiming for the lower end. This strategic approach is underpinned by the understanding that, should an agreement not be reached within the stipulated six-month deadline, the leaseholder faces the prospect of incurring additional costs associated with a tribunal application. Consequently, it is often more judicious for leaseholders to agree to a marginally higher premium for the lease extension than to bear the financial burden of tribunal proceedings. It is important to note that current legal frameworks do not predominantly favor leaseholders in this aspect, making strategic negotiation and timely resolution all the more critical.