Getting Started with Lease Extensions: When to Act and What’s Changing

If you own a leasehold flat, extending your lease is one of the most effective steps you can take to protect its value and marketability.

As the lease term reduces, your property can become more difficult to sell or remortgage and more costly to extend. Taking early action can make a significant financial difference.

Why Extending Your Lease Matters

A lease is a diminishing asset. As the number of years remaining decreases, so too does the value of your flat. Extending your lease can:

• Increase the value of your property, as buyers typically favour flats with longer leases
• Make selling or remortgaging easier, as lenders are often reluctant to lend against short leases
• Provide greater control over lease terms
• Help avoid additional costs under the current rules, including “marriage value”,
• Protect the long-term marketability of your property

The 80-Year Rule Explained

Under the current law, once your lease falls below 80 years, the cost of extending it increases significantly due to “marriage value”.

In simple terms, marriage value reflects the increase in your property’s value following a lease extension. A proportion of that uplift must be paid to the landlord as part of the premium.

For this reason, it is generally advisable to consider extending your lease before it reaches this threshold.

However, this is an area of change. Under the Leasehold and Freehold Reform Act 2024, marriage value is expected to be removed as part of wider reforms to the leasehold system, which may reduce the cost of extending shorter leases in the future.

Your Options: Two Routes to Extend

There are two main routes to extending your lease. The most appropriate option will depend on your circumstances and your landlord’s position.

1. The Informal Route

This involves negotiating directly with your landlord outside of the statutory process.

This is typically quicker and may involve lower initial legal costs. However, it is important to note that the landlord is not obliged to agree. Terms can vary considerably and there is less legal protection than under the formal process.

If you proceed informally, you should be clear on:

• The length of the proposed extension
• Any changes to ground rent
• Whether other lease terms are being varied

2. The Formal (Statutory) Route

The formal process is governed by the Leasehold Reform, Housing and Urban Development Act 1993. If you qualify, you have a legal right to extend your lease by 90 years and reduce ground rent to a peppercorn (nil).

The process begins with the service of a Section 42 notice on the landlord and follows a prescribed legal timetable, including:

• Service of the tenant’s notice
• The landlord’s counter-notice (Section 45)
• Negotiation of the premium and terms
• Referral to the First-tier Tribunal if agreement cannot be reached

The formal route offers clear timeframes and statutory protection, although it can take longer and involve additional professional costs.

How the Law is Changing

The Leasehold and Freehold Reform Act 2024 will introduce significant changes to lease extensions once fully in force. These are expected to include:

• Extending the standard lease term to 990 years
• Reducing ground rent to a peppercorn (nil) for all extensions
• Removing marriage value from the premium calculation
• Making it easier and cheaper for leaseholders to extend their lease

In addition, leaseholders no longer need to wait two years after purchasing a property before starting the statutory process.

It is important to note that many of these changes are not yet fully in force, and further legislation is required before they take effect in practice.

How Much Does It Cost?

The main cost of extending your lease is the premium. This is the amount payable to the landlord. This is calculated based on factors such as the length of the remaining lease, the value of the property and ground rent arrangements.

In addition, you should also budget for your own legal fees, your valuer’s fees and the landlord’s reasonable legal and valuation costs.

Looking ahead, proposed reforms are expected to simplify valuation methods and reduce costs, although the full detail will depend on how the legislation is implemented.

Complex Situations

In some cases, the process may be more involved, for example:

• Where a lease extension is required alongside a sale or purchase
• Where a property has been inherited with a short lease
• Where the landlord is absent or unresponsive
• Where you own a share of the freehold

Specialist advice at an early stage can help ensure the process runs smoothly.

Should You Extend Now or Wait?

With reforms on the horizon, many leaseholders are asking whether they should proceed now or wait.

The answer will depend on your individual circumstances, including the length of your current lease, the value of your property and how quickly you need to sell or remortgage.

The government intends to implement the reforms “as quickly as possible”, but they have acknowledged this is complex and will take time some are still awaiting consultation.

Final Thoughts

Extending your lease is a significant decision that can directly affect the value, saleability and long-term security of your property.

Although the legal landscape is evolving, understanding your current rights, alongside the incoming reforms, will help you make informed decisions at the right time.