Helping clients to agree the premium for a Lease Extension

We advise on voluntary and statutory lease extensions of flats. Our team has significant knowledge of the process and the market, helping our clients to achieve the right outcome, whether acting for the freeholder or the leaseholder.

We are able to provide advice on valuation issues through the entire process from the time a claim is being contemplated, providing initial advice, entering into negotiations, making recommendations, preparing Expert Reports and attendance of Hearings.

  • What capitalisation rate to use to compensate the freeholder for the loss of rent
  • What Deferment Rate to use to compensate the freeholder for the loss of their reversion
  • The vacant possession value of the flat on a long lease
  • The vacant possession value of the flat on the existing lease, without Act rights
  • The Marriage Value
  • The breakdown of the premium where it must be shared by freeholder and intermediate parties
  • Handling claims where there are onerous rents
  • Handling claims where intermediate parties go into a negative equity position

FAQs

Here are a few of our most frequently asked questions for more general questions.

Extending a lease adds value to the leaseholder's interest in their property. A lease is a diminishing asset, and problems arise when an owner wants to sell or remortgage. Purchasers prefer longer leases, while mortgage providers are reluctant to lend on unexpired less than 80 years. The longer leaseholders wait to extend their lease, the more costly it may be when it comes time to renew. 

Leasehold reform valuations are a multiplier of the ground rent payable for the term, then will arrive at the property's current value assuming the freeholder will not own it until the lease expires, which is why we use a deferment rate. In cases with less than 80 years unexpired on its term, we apply a marriage value.

A leaseholder is taking something from the freeholder and they should be compensated for that loss. Where the lease has over 80 years to run, the freeholder needs to be compensated for the loss of the ground rent and the fact that they will now have to wait a further 90 years to get the property back.

Where the lease falls below 80 years, the freeholder is also entitled to 50% of the marriage value. In simple terms, marriage value is the difference between the combined value of the parties' new interests and the combined value of the parties current interests.

A leaseholder will be qualified for a lease extension if:

  • The lease is longer than 21 years when initially issued
  • The leaseholder has been registered as the owner of a flat for two years

Most lease extensions follow the same steps:

  • Obtain valuation advice
  • To save costs, some lessees approach the freeholder to see if they can reach an agreement before progressing
  • Failing this, after a short period, serve a "Section 42 Notice", also known as a statutory notice
  • Typically, the freeholder will appoint a valuer (it is the leaseholder's responsibility to pay for the freeholder's valuation advice)
  • After a notice has been served, a counter notice will be served by the freeholder (also a "Section 45 Notice")
  • The parties’ valuers will negotiate. Alternatively, the leaseholder can negotiate directly with the freeholder or their valuer)
  • Both parties reach an agreement. If no agreement is reached, it will progress to FTT.
  • The solicitors tie up the legal matters

Though the steps can seem straightforward, complications often arise. Please be cautious and seek advice from professionals.

It allows lessees to extend their lease by 90 years at a peppercorn [nil] ground rent in exchange for paying a premium and some costs, or in some cases, to club together with their neighbours and buy the freehold of the block. The longer the lease, the cheaper it is to do.

An expired lease doesn't mean the leaseholder has to leave the property. If neither the leaseholder nor the freeholder has taken steps to end the tenancy, it will continue on the same terms. Until the leaseholder receives notice from the freeholder, they aren't required to do anything.

One of the following needs to happen for a tenancy to end:

  • the leaseholder surrenders to the tenancy to the freeholder at their discretion
  • The freeholder will serve a prescribed notice to the tenant to regain possession of the property
  • The freeholder obtains a court order to gain possession of the property
  • The freeholder may serve a prescribed notice proposing an assured periodic tenancy, where the leaseholder pays a monthly rent

If none of the above has occurred yet, the leaseholder is still the legal tenant, and it is still possible to extend the lease or purchase the freehold.

The method of valuing a lease extension is set down by Statute. It is complicated and involves a lot of hypothetical assumptions. Some online calculators can provide a guide, but as there are so many variables, it is inadvisable to rely on less specific figures without seeking specialist advice. For details on how valuations are carried out, visit our guide or contact us to learn more.

How can we help?

If you are considering a lease extension, please feel free to call any of us to discuss your options further.

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