Our lease extension solicitors explain how to negotiate a lease extension.

Our lease extension solicitors explain the lease extension process

Leasehold and Freehold Reform Act 2024

The introduction of the Leasehold and Freehold Reform Act 2024 (LAFRA) has the potential to affect the lives of property owners. The Act increases the statutory lease extension term from 90 years to 990 years, abolishes marriage value, and ensures all extended leases carry only a peppercorn (£0) ground rent. In addition, the Government has proposed introducing a £250 per annum cap on ground rent for existing leases. This measure, which is not yet in force, would limit the amount payable by leaseholders under historic leases that still require ground rent. Once implemented, the cap will apply only to existing leases that predate the Leasehold Reform (Ground Rent) Act 2022. New and extended leases will continue to carry only a peppercorn (£0) rent under current legislation. If you are looking to extend your lease, then your costs and situation may be affected by this new reform, but then again it may not. For more information about LAFRA and how it could affect you, check out our blog here: The Leasehold and Freehold Reform Act 2024

Requesting a Lease Extension through your Landlord

You, or our lease extensions solicitors, can obtain a lease extension by seeking an informal lease extension from your landlord, or alternatively by serving a Section 42 Notice on them if you are eligible.

How to Start the Informal Lease Extension Process

If you wish to begin an informal lease extension, the first step is to contact your freeholder or their managing agent to express your intention to extend the lease. It’s advisable to obtain a valuation report from a chartered surveyor before opening negotiations, so you have an independent estimate of a fair premium to offer. Once contact has been made, you can submit an initial proposal outlining the desired lease term, proposed premium, and any changes to ground rent or other clauses. Your lease extension solicitor can then formalise the offer and handle correspondence with the freeholder to ensure that all proposed terms are legally sound.

Unlike a statutory lease extension, there are no prescribed deadlines or procedures for informal extensions, so timelines and costs can vary. Because of this flexibility, it is vital to have a solicitor review any draft lease before signing to ensure that no unfair or onerous terms are included.

You and your landlord can negotiate the premium payable, the terms of the extended lease and the number of years by which the lease is to be extended. This route is available to leaseholders who are not eligible to serve a Section 42 Notice onto the freeholder and for leaseholders who also have a share of the freehold with other leaseholders. Find out more about negotiating an informal lease extension.

Lease Extension by way of a Section 42 Notice

This is considered the Statutory route. The premium payable for the lease extension will be calculated based on a formula set out in the Leasehold Reform Act 1993. By serving a valid Section 42 Notice, the lessee has the right to extend their lease by 90 years. If you opt to negotiate directly with the competent landlord (or their lawyer) then your lease extension solicitor will be required to draw up the terms of the lease extension and ensure it is signed by both parties. In other words, you will need your lease extension solicitor to obtain the signature of the competent Landlord to complete the agreed renewal of the lease. You will also normally require a Valuer to extend the lease.

If you would like an idea of the cost for your lease extension, try our lease extension calculator.

The role of Lease Extension Solicitors

We, the Solicitors will normally:

• Prepare the required information for the application.
• Serve the Notice on the competent landlord and copies to other landlords.
• Respond to landlord’s requests for information to support the claim.
• Deal with conveyance of the new lease.

Extending a Lease with a mortgage

If you wish to carry out a lease extension on your property whilst you have a mortgage you will need the consent of your lender. This is to ensure that the money they have lent you is protected. The lender will give their consent for the lease extension by signing a Deed of Substitution, also known as a Deed of Substituted Security. This essentially “moves” your mortgage from your old lease to your new lease, as your new lease counts as a different title to the old one. It is also worth noting that lenders will only deal with solicitors who are on their conveyancing panel. Starck Uberoi are on the Conveyancing Panel for most banks and building societies. This means that we are able to assist you in obtaining the consent of your lender for a lease extension, via a Deed of Substitution. You may also need a deed of substituted security when splitting the title of your property: for example, if you split a house into self-contained flats but intend to live in one of them, you would need to move your residential mortgage onto only the flat you are going to live in.

You can read more about this in our blog on Splitting Property into Flats.

Time Frame for arranging a Lease Extension

It should take approximately 3 months for your lease extension to be finalised if you are arranging your lease extension directly through your landlord, or your landlord’s solicitor. If you are looking to take the statutory route for securing your lease extension then visit our blog on Serving a Section 42 Notice for more information.

The role of the Valuer

Prior to the lease extension the Valuer will:

• Provide the “best and worst” case valuation.
• Advise on the amount of the offer to be made in the Notice.
• Negotiate an agreed settlement of the premium payable for the new lease. This includes representation at the Tribunal, in the event we are required to issue a claim.

Importance of obtaining a Valuation from a Chartered Surveyor

Legislation does not formally require a full valuation for an application for a new lease. However, it is strongly recommended that you do not proceed without proper valuation advice from a Chartered Surveyor. This advice should be provided to you early on from a surveyor with a strong understanding of legislation and the property market. Valuation is far from an exact science, and it will be virtually impossible for the Chartered Surveyor to provide an accurate estimation of the eventual settlement figure. However, your Chartered Surveyor should be able to provide a “best and worst” figure, valuing from both the leaseholder’s and the landlord’s perspective. In addition, the Surveyor should be able to anticipate areas of claim and counter-claim by using their local experience with London properties. There is no such thing as a fixed price for a new lease. You should be aware, from the beginning, of the likely range within which the price will be settled, so as not to be surprised at a later stage. We can recommend a London Surveyor we have worked very closely with in the past for lease extensions, if required. In considering the likely premium you should also bear in mind the leaseholders’ liability for the landlord’s costs. The eventual cost of the new lease will be the premium, plus both your own and the landlord’s agreed legal and valuation costs. This is excluding any costs which are incurred in connection with proceedings before a Tribunal.

Negotiating Purchase Prices for Short Lease Properties

When buying a property with a short lease, it is important to recognise that the cost of extending the lease will directly affect the property’s value. Buyers can often use this to their advantage during negotiations by agreeing a reduced purchase price to reflect the premium that will later be payable to the freeholder for the lease extension. This ensures that the buyer is not overpaying for a property which will immediately require additional expenditure. Sellers are generally open to such adjustments, especially where the lease has fallen below 80 years and the property’s marketability has been affected. Both parties can also agree to proceed with an informal lease extension at the same time as completion, subject to the buyer’s lender’s consent, ensuring that the extended lease meets mortgage requirements upon purchase.

Negotiating Auction Prices for Short Lease Properties

In the auction setting, short leases are typically priced to reflect the diminished term and the cost of a future lease extension, but there is still room for negotiation prior to bidding. Where no extension has been arranged, buyers may be able to negotiate a lower reserve or final bid price to offset the lease extension premium likely to be payable soon after completion. It is crucial to seek legal advice before the auction to confirm whether the property can be mortgaged and whether the lease extension process can commence immediately following purchase, as these factors will influence both the risk and price a prudent buyer should be prepared to pay.

How Starck Uberoi can help

Our experienced lease extension solicitors will deal with your matter efficiently, and negotiate to ensure you get the best possible premium. For more information please visit our Conveyancing page. For an appointment at any of our offices, email us at solicitor@starckuberoi.co.uk or call 0208 840 6640. Our offices are based in Ealing, Brentford, London Belgravia and Canterbury, all within easy reach by public transport. Our partner, Raminder Uberoi, can also provide a Notary Public Service at any of our London offices.

Our Offices

Our solicitors on Brentford High Street, are just a short walk away from Brentford railway station. Our Belgravia solicitors are located Just a 5 minute walk from Victoria tube station in Grosvenor Gardens. Our solicitors located in Ealing London are only a short walk from both Ealing Broadway and South Ealing and our solicitors in Richmond Surrey have the pleasure of overlooking the picturesque Richmond Green.  Finally our solicitors in Canterbury Kent are located in the within the UNESCO World Heritage Site of Canterbury Cathedral.

Our partner, Raminder Uberoi, can also provide a Notary Public Service at any of our London offices.