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Extend my lease: FAQs
Below are a few of the questions I most commonly encounter regarding lease extensions. However, please get in touch with me or my colleagues if you have any further questions.
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Why should I extend my lease?
Extending your lease increases your property’s value and makes it more attractive to future purchasers and lenders.
When should I extend my lease?
It always pays to extend your lease as soon as possible; the shorter the lease term, the more expensive it becomes. And remember, mortgage lenders will not lend on short lease terms.
Why do I need to pay a premium to my landlord?
The premium compensates your landlord and represents the increased value of your flat.
What is a peppercorn rent?
A peppercorn rent means a token rent, ie no money payable.
What’s the difference between a voluntary and statutory lease extension?
For the difference between a voluntary and statutory lease extension, see our article, Two ways to extend your lease.
However, beware that the informal route means you won’t necessarily achieve a ninety year extension, nor will the ground rent necessarily be reduced to a peppercorn. Indeed, it’s not uncommon for the landlord to request an increase in the ground rent.
How much does a lease extension cost?
To extend the lease, you pay your landlord a premium representing compensation for extending the lease and extinguishing the ground rent.
Under the formal route, the premium is calculated according to a statutory formula. Usually, a surveyor advises how much you should offer in the Section 42 Notice. However, expect the sum you end up paying to be higher.
In addition to the premium, there are your professional costs, mortgage lender’s administrative costs, landlord’s costs, and Land Registry fees. In some cases, there may be Stamp Duty to pay. And if your lease has less than 80 years to run, you must pay ‘marriage value’ (see below).
What does ‘marriage value’ mean?
If less than eighty years are left to run on your lease, you pay your landlord an additional fee called ‘marriage value’. That’s because a longer lease term increases your flat’s value, and the payment of marriage value represents splitting the benefit of that increase with your landlord.
Do I need to use a surveyor?
There’s no legal requirement to have a surveyor’s formal valuation. However, we do recommend a valuation by a specialist surveyor. We can recommend one to you.
What happens if we cannot agree a lease extension premium?
If you and your landlord cannot agree a premium, you can apply to the Tribunal. It’s important to apply to the Tribunal within the appropriate time limit. Failing to do so means losing the right to extend your lease and having to start again. You may also have to wait a year before recommencing the process and will be liable for costs.
Is Stamp Duty payable on a lease extension?
Lease extensions are usually exempt from Stamp Duty. That’s because where a lease is surrendered in consideration of granting a new lease between the same parties, neither the surrender nor the new grant is regarded as chargeable consideration for Stamp Duty Land Tax purposes.
Should I wait for the law to change before extending my lease?
The Government has announced proposals to further reform leasehold law for the benefit of leaseholders. But although much is promised, there’s currently little indication of when the law might change and, if it does, what the full extent of the changes will be. However, the Government has signalled its intention to make lease extensions less expensive and to remove ‘marriage value’ as an element of the premium.
Consequently, it’s very difficult to say at this stage whether you should wait for these reforms to be implemented or proceed immediately. So, ultimately, it depends on your reasons for wanting to extend the lease.
What is a Section 42 Notice?
A Section 42 Notice is the document served on a freeholder by a leaseholder to commence the statutory lease extension process.
I’m buying a flat with a short lease. Do I have to wait two years to extend?
You don’t necessarily need to wait two years. After completion, you can consider the voluntary lease extension route. Alternatively, the seller can initiate the statutory process, with the right to extend the lease assigned to you on exchange of contracts. This means you take over the lease extension process on completion.
What is a Deed of Substituted Security?
A Deed of Substituted Security is a document confirming your mortgage lender consents to their charge moving from your current leasehold title (relating to your old lease) to the new title (relating to the new longer lease).