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Posted 24 Apr 2024

How Much Does It Cost To Extend A Lease On A Flat In The UK?

apartment / flat / leasehold / share of freehold

Lots of UK flat owners ask me these important questions - how much does it cost to extend a lease and when should you do it?

In this guide I’ll tackle a very important question that owners and prospective buyers of UK flats often ask… How much does it cost to extend a lease?

Most apartments in the UK are leasehold ones, but some houses are too. According to HomeOwners Alliance, 15% of new build houses sold in 2016 were leasehold, but this fell to under 1% by December 2022.

At the time of writing, there is some very important legislation making its way through parliament. This would make the cost lower and the process simpler when extending a lease in the UK.

That legislation is called the Leasehold and Freehold Reform Bill. If passed, potential changes to the lease extension system could include:

  • Lower costs to extend a lease
  • Option to extend a lease by 990 years
  • No requirement to cover a freeholder’s fees 

In addition, the Leasehold and Freehold Reform Bill proposes to ban new leasehold houses entirely.

However, it’s too early to say if or when this bill will pass. So for now, I’ll answer the most frequently asked questions around extending a lease, based on the current system as it stands.

What is a leasehold property?

In the UK, 81% of apartments have a leasehold ownership model, The Conversation reports – this means that while you own your property, you don’t own the building itself. 

By owning the flat, you have the right to live there for a set number of years – the lease. You purchase this lease from the freeholder, who retains ownership of the land and building exterior.

The lease agreement will outline your responsibilities as a resident and those of the freeholder for upkeep.

Leases come with conditions. Currently, these include paying ground rent – an annual fee to the freeholder – and service charges to cover building maintenance.

Recently, the government passed the Leasehold Reform (Ground Rent) Act 2022, putting an end to ground rent for most new residential leasehold properties. However, this does not apply to existing properties.

Do I need a lease extension?

It depends how many years are left on your property’s lease. If you’ve purchased a new build, it may have come with a relatively long lease of 99-125 years, as Propertymark confirms.

But older properties often have fewer years left on the lease. And there’s a very important number of years to bear in mind when it comes to the lease extension process.

The number to watch out for is 80 years. Once there are only 80 years or less left on the lease, it becomes much more expensive and difficult to extend the lease – but not renewing it will have repercussions too.

It will make the property difficult to sell or remortgage, particularly once the lease reaches the 70 year mark, according to Martin Lewis. Buyers may also struggle to receive a mortgage offer from lenders for such a property.

It can take some time to renew a lease, so when your property has less than 90 years left on it, start making plans to seek an extension.

What’s the problem with a sub-80 year lease on a property? It’s all about something called the ‘marriage value’ of the property and lease.

When the lease enters its final 80 years, the freeholder is entitled to 50% of the increase in value of the property when you extend it. In this scenario, the ‘marriage’ is between the freeholder’s property and your lease.

Again, the government has confirmed that its proposed reforms would see ‘marriage value’ scrapped.

My advice for any first time buyers of apartments is as follows… Check the property listing for any mention of the remaining lease length.

Property listings must show this information, under the National Trading Standards Estate and Letting Agency Team (NTSELAT) guidelines Part A. If it’s not there, ask the estate agent to confirm how many years are left.

How much does it cost to extend a lease on a flat (UK)?

So, onto the big question – how much to extend a lease? The cost of extending a lease depends on factors including:

  • Property value
  • Remaining lease length
  • Ground rent cost
  • Your negotiation fees
  • Valuation fees (yours and the freeholder’s)
  • Legal fees (yours and the freeholder’s)
  • Stamp duty if this is not your main home

Let’s take a look at an example, as detailed by MoneySavingExpert using Homehold data for a £500,000 flat. This example assumes that the lease extension is for a further 90 years.

Here you can see how the number of years left on the lease would affect the cost you incur – from having a relatively healthy 90 years left on the lease, down to only having 60 years left. 

All costs and property value rises cited are approximate:

  • 90 years left on the lease = £12,300 cost to extend, adding £31,000 in value
  • 85 years left = £14,500 cost, adding £36,500 in value 
  • 79 years left = £34,500 cost, adding £42,500 in value 
  • 70 years left = £50,000 cost, adding £58,000 in value 
  • 60 years left = £71,500 cost, adding £78,000 in value 

These costs are based on ground rent of £100, rising by a further £100 every 33 years.

The costs include the price of the lease extension – plus the various valuation, negotiation and legal fees for you and the freeholder – but no stamp duty.

Look at the vast difference in costs between a property with 90 years left on its lease compared to one with only 60. You would also see a much better return on investment for the property with 90 years left on the lease, thanks to the subsequent property value increase.

Here is the Leasehold Advisory Service lease extension calculator for flats.

Are there any other alternatives?

So, those are some leasehold extension cost guidelines. But rather than paying to extend your lease, one potential option is to try buying your freehold instead.

As a leaseholder, you can ask the freeholder to sell it to you at any time. This is ‘collective enfranchisement’ – a right confirmed by the Leasehold Reform, Housing & Urban Development Act 1993.

But in a block of apartments, you’ll need at least half of all the other leaseholders to buy it as a group.

For more information about the pros and cons, here is my guide on buying a share of the freehold.

How does the lease extension process work?

Under the Leasehold Reform, Housing & Urban Development Act 1993, as a leasehold apartment owner, you have the right to apply for a 90 year extension. For leasehold houses, the extension is for 50 years.

You need to have owned the property for at least two years. Here’s a general breakdown of the statutory route process for how to extend a lease:

  • Inform the freeholder: Let them know you want to extend the lease and plan to use the statutory route
  • Appoint professionals: Instruct a solicitor specialising in lease extensions – a member of the Association of Lease Extension Practitioners (ALEP) – and a surveyor with expertise in leasehold valuation
  • Serve a Section 42 notice: This formal notice initiates the statutory process
  • Valuation and negotiation: Both parties obtain valuations of the lease extension premium, negotiations then follow to agree on a final price and terms
  • Pay a deposit: If required by the freeholder
  • Tribunal (if necessary): If an agreement isn’t reached, either party can apply to take the case to the First-tier Tribunal (Property Chamber) to determine the premium and terms
  • Completion: Once terms are agreed, the lease is extended

This is a general overview. A solicitor specialising in lease extensions can provide specific advice on your situation.

And how long does it take to extend a lease? It tends to be between 3-12 months according to HomeOwners Alliance.

Final thoughts: How much does a lease extension cost?

I hope this guide has helped you learn more about how extending a lease works for property in the UK.

In short, how much is it to extend a lease? It depends on the property value and remaining lease length.

Other factors affecting the cost include the price of ground rent, your negotiation fees, the valuation fees, legal fees and stamp duty if this is not your main home.

For more helpful guides, check out the Fine Living blog. Recently we’ve covered the debate between appointing a conveyancer or solicitor when buying a house and I’ve also shared my thoughts on how to buy a property in need of renovation.

And if you’re looking for a house rather than an apartment, here are 16 questions to ask when viewing a house.

No matter what your property needs are, Fine Living is here to help. Take a look at our portfolio and please don’t hesitate to get in touch with any questions.

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