The duration of your lease will significantly affect the value of your property. Ideally, you need a long lease. If you’re the owner of a flat or a house in East London (Ilford, Redbridge, Newham, Seven Kings, Barking & Dagenham, Gants Hill, Clayhall, Barkingside, Romford, Chadwell Heath, Havering, Walthamstow, Waltham Forest and surrounding areas), then it’s likely to be a leasehold property. It is essential to understand how long is left on your lease.
The government has introduced major changes under the Leasehold and Freehold Reform Act 2024 to make it cheaper and more accessible for leaseholders to extend their lease. However, the reforms have not been fully implemented yet but are expected to be rolled out from 2026 and onwards.
In this article, we take a look at how to extend the lease on your property.
A leasehold property is only owned for a fixed period of time. The purchaser has a legal agreement with the landlord called a lease which specifies how many years they will own the property.
A lease will typically have an initial term of 99 or 125 years, but some can be up to 999 years. As time goes on, the lease period reduces. Once the lease expires, ownership of the property will revert to the landlord.
Buying and selling at the same time?
Here are 10 things that could go wrong, and often do go wrong, and what, if anything, you can do to avoid them.
Buying and selling at the same time?
Here are 10 things that could go wrong, and often do go wrong, and what, if anything, you can do to avoid them.
The duration of your lease can significantly affect the value of your property. This is because potential buyers will factor in the cost of extending the lease into the price that they are willing to pay.
Mortgage companies generally require at least 85 to 90 years left on the lease. If you need to remortgage, for instance, when your fixed-rate period ends, you may end up paying a much higher interest rate until your lease extension is secured.
The shorter the lease, the higher the costs for lease extension. Act early to save costs.
Yes, there are several rule changes that are already in effect and further changes will follow. On 31 January 2025, new regulations were introduced that removed the two year wait for extending a lease or buying the freehold when purchasing a new property.
When the further planned changes are introduced, the standard lease renewal term will be 990 years with zero ground rent, which will mean homeowners will not have to arrange future lease extensions.
Another major change is that marriage value will be removed on short leases, so the cost for lease extensions will no longer be more expensive on leases with short terms remaining.
Further proposals include more transparent service charges and standardised bills on leasehold properties, with freeholders having more accountability for justifying charges.
If you have 90 years or less remaining it is probably worth extending.
Prior to the full implementation of the Leasehold and Freehold Act 2024, leases with less than 80 years remaining are more expensive to renew because the freeholder is entitled to an increased premium (called a ‘marriage value’) that reflected the property’s increased market value following the lease extension. The new government legislation will remove marriage value from the cost of extending a lease.
You may want to seek specialist legal advice from the Leasehold Advisory Service to understand whether to renew an existing lease before the new rules come into force.
Want to become a more informed landlord? Find out about building a property portfolio and capital gains tax on rental property.
As the two-year waiting period for extending a lease when you purchase a property has been abolished, you no longer need to wait to extend. However, you will need the lease to be a “long lease” (usually exceeding 21 years) to be eligible for extending the lease.
There are also some exceptions that apply to extending leasing, such as not being able to extend a lease on shared ownership properties unless you have increased your share to 100%.
A solicitor will handle all the legal documents for extending your lease, mediate any disputes and ensure that the freeholder keeps to the prescribed time limits.
It is vital to appoint a solicitor with specialist knowledge of lease extensions. The Association of Leasehold Enfranchisement Practitioners is an excellent place to start. Prices can differ, so make sure you get quotes from a few different firms.
Appoint a chartered surveyor who will put a value on the lease extension. Check that your surveyor specialises in lease extensions and is a member of a recognised professional body, such as the Royal Institution of Chartered Surveyors (RICS) or the Residential Property Surveyors Association (RPSA).
You will have to serve your landlord with a Section 42 notice, proposing your premium for extending the lease. (Under the 1993 Leasehold Reform, Housing & Urban Development Act). Your solicitor will take care of this.
Your landlord has two months to respond to your offer. If they do not accept your terms, you will need to enter into negotiations until both parties agree.
You can apply to a tribunal, if you can’t agree on the premium for the lease extension. You can apply to a First-Tier Tribunal to settle on an agreement.
The new government legislation promises to set the calculation rates ensuring that lease extensions are fairer, cheaper and more transparent, without needing a tier tribunal.
Generally, deposits are £250 or £10% of the lease cost, whichever is greater. Your solicitor will draw up the necessary contracts for both parties to sign and update the land registry.
The cost of buying extra years on your lease will depend on the property’s value, the number of years left on the lease, the annual ground rent and the value of improvements paid for by the leaseholder. A surveyor specialising in leasehold extensions will be able to calculate the cost and stop you from paying over the odds for your extension.
The government has pledged to introduce a new online extension calculator to make it simpler for leaseholders to determine how much it will cost to extend to a long lease. As previously mentioned, the government is abolishing the premium ‘marriage value’ payable to the landlord when extending a lease with less than 80 years remaining.
In addition to the premium (price) of buying extra years on your lease, you will also need to pay:
Although it can be expensive to extend your lease, remember that you are adding to the value of your property, and you will no longer have to pay any ground rent.
The legislation in the Leasehold Reform Act 1993 and Housing and Urban Development Act 1993, sets out the lease extension formula. It determines the amount of capital that a leaseholder pays to the landlord, for a lease extension.
To obtain an estimate on the premium for a lease extension, try using the online lease extension calculator provided by LEASE: Lease extension calculator (LEASE)
Generally, the entire process takes between 3 and 12 months but can be made quicker by hiring a good solicitor and surveyor, so make sure you choose these people carefully.
Legislation called ‘collective enfranchisement’ gives you the right to get together with your fellow leaseholders and buy the freehold for a ‘fair market price’.
You will need at least 50% of leaseholders in your building block to agree to participate. You would then jointly own the property outright. Whilst this is more expensive than simply extending your lease, you have much more control over the running of the apartment block. You may find your service charge, which covers things like insurance and maintenance, can be reduced as you can be more discerning about your choice of service providers.
Another option is to sell the property without extending the lease, but this can impact the sale price. If you have a lease term of over 80 years remaining, the price should not be significantly affected.
You can also start the process of the lease extension before selling and the buyer will take over the extension, which can improve saleability as the buyer will have less work to do if the new lease process has already started.
Extending a lease can be complicated and with the new reforms being at varying stages of progression, this further adds to the challenges you may face when selling a leasehold property. With many years of experience in selling leasehold properties in east London areas including Forest Gate, Dartford and Wanstead, we can help you to maximise the sale value of your home. Get in touch with our team for a leasehold sale consultation.
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