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Extending your lease – let’s all be civil, shall we?

Book with cardboard house

From the minute I put an offer in for my flat, I knew that the 73-year lease was too short. But what I didn’t realise was that purchasing a lease can easily be done informally. Here’s why I think it’s good to talk…

I’m in the process of buying what I can only describe as ‘an incredibly expensive piece of paper’.

My bank is happy to class it as a ‘home improvement’ and lend me a bit extra on my mortgage, but I won’t have anything particularly exciting to show for it. No shiny new bathroom, no smart double-glazing, not even a lick of paint in the lounge. All I’ll get is a piece of paper saying my flat’s lease will be 90 years longer.

When I bought my flat I knew the lease would be a problem – although 73 years sounds like a long time (73 years ago World War Two was just beginning) – in the world of leasehold properties it’s actually quite short.

If your lease drops below 80 years it suddenly costs much more to renew it, as you have to pay an extra chunk of money to your freeholder (called the ‘marriage value’). If your lease drops further, below 70 years, it’s difficult to get a mortgage on the property and therefore trickier for you, the owner, to sell the flat.

How to extend your lease

The good thing about leasehold flats is that there are laws in place that give you the right to buy your lease after you’ve lived in the property for two years. The bad news is that it can be an expensive process.

You have to have a solicitor serve a ‘Section 42’ notice on your freeholder, then you must pay for valuation of the lease and for the freeholder’s own valuation. Finally, when your solicitors have negotiated a price and the transaction’s gone through, you’re also liable for the costs of both parties’ solicitors. Ouch.

I was, however, surprised that many solicitors and advice websites presented this as the only option. It’s an expensive process, with a lot of the money going to solicitors who spend time negotiating the price of the lease. Surely we – as civilised human beings – can simply discuss the price informally and make an agreement? That way when we instruct solicitors to deal with all the paperwork, it will be quicker (good for both of us) and cheaper (good for me).

Informal leasehold purchase

Well, I’m pleased to say that it is possible. Rather than serving a ‘Section 42’ notice on my freeholder, I dropped him an email. I explained the situation and we came to an agreement on getting the flat valued. When the valuation report came back, we had a discussion and agreed a final price.

We’re now engaged in the boring back-and-forth of getting things finalised, but I’m pleased to say that by doing DIY negotiations, we’ve managed to agree a fair price and save me a bit of money in the process. But how many people know this is possible? I’d guess not many, as the ‘informal leasehold purchase’ process isn’t widely publicised, and (for good reason) not many solicitors want to draw your attention to it.

The informal route might not always be desirable – if your stomach turns at the thought of having to negotiate money or even if you just don’t have the time – but it’s certainly an option I’d urge you to consider. Solicitors do a great job sometimes, and they’re crucial for hammering out the nitty-gritty, but sometimes we can save a lot of money by simply talking to each other.

With my new-found DIY skills, I’m keen to see if there are any other situations where we could cut out the middle man and discuss things to save money.

Comments
Profile photo of jgh30
Member

Which? worked hard to open up the conveyancing market and to promote diy. So refer please to “You or your conveyancer” not “Your solicitor”.

Profile photo of jgh30
Member

Whether or not you intend to use professionals, it is always a good idea to start with the Leasehold Advisory Service’s calculator at http://www.lease-advice.org/calculator/

Member
Tony Lilleystone says:
5 September 2012

Definitely a good idea to use the LAS calculator which is free to use and an excellent starting point for getting an idea of the premium’ range that a freeholder might expect to charge. Bear in mind that on line calculators are only a guide to the cost of renewing a lease, not the actual costs.

[We have removed the link from this comment as it breaks our commenting guidelines. Thanks, mods.]

Member
myleasehold ltd says:
10 September 2012

Informal negotiations can be a great way of saving money on fees, however Tenants should always be wary of exploitation when they are not getting professional advice in negotiations.

Sometimes problems or onerous clauses within a lease can remain where they could have been resolved, for example, and there are certain Landlords who will seek to introduce new provisions to the lease that make it less attractive.

A ‘diy’ negotiation may be a viable option in some instances – but in all cases, proceed with caution.

Member
John Francis says:
22 October 2012

Re;Informal leasehold purchase for a semi-detached house.
a).Is the procedure the same as for a flat?
b).Is there a standard format letter that can be used(I am not legally minded) ?
c).If the cost is too high,can I then ask for an extension of my lease?

Profile photo of jgh30
Member

Bestg to Google ‘Leasehold Advisory Service’ for this sort of thing

Member

I have a similar question on lease valuation.

I’ve been quoted a price to buy the freehold for my house. The price works out as about 50 years worth of the annual ground rent charge (not taking into account inflation).

The Leasehold Advisory Service couldn’t tell me if this was a reasonable price or not & said I’d have to contact a surveyor to investigate.

Is it not possible to judge the offer solely on the figures above?

If not, are there some simple tables of going rates somewhere to judge if the offer is reasonable or not without having to hire a surveyor or solicitor?

ps: The term of the lease is 999 years

Thanks in advance,
Jim

Member
myleasehold says:
5 December 2012

There aren’t any simple tables of going rates I’m afraid, but generally when compensating the freeholder for the loss of ground rent income, the rent is capitalised to determine what it is worth today in one lump sum, rather than spread out over the rest of the term.

With a lease of that length (999 years), the freehold generally has a nominal value apart from the ground rent income. It depends on the sums of money involved as to whether or not it would be worth your while taking some professional advice.

Member
sara quinlan says:
4 April 2013

we own our house that has only 79 years left on the leasehold. The freehold is owned by the local council. We have been offered to purchase both. I can understand why we should buy the freehold from the council but do we need to buy the leasehold, as my understanding is that the leasehold will revert back to the freeholder in 79 years i.e. me or the more likely the new owner of the house?

Profile photo of jgh30
Member

Possibilities

1 There is an intermediate lease (which might involve other properties betwee your lease and the freehold

2 The Council is trying to be helpful by suggesting that you get your leasehold off the Land Register at the same time as buying the freehold.

Member
fibee says:
23 April 2013

I used the calculator has suggested on these comments and it estimated my cost of almost double of what i have had to pay !!! so whilst it is good in theory it is no where conclusive, i purchased my 90 year extension for £2000, calculator estimated £4000 !!!!!!

Member
matchu says:
11 December 2014

may i ask how many years you had left? I have 71 years and I’m thinking I need to extend the lease asap but I have no idea how much it will cost!! My flats worth about 104,000.

Member
StuMac says:
30 July 2014

OK. I’m going to try the informal route because I want to put my flat on the market and the freeholder has said that she is happy to negotiate (after she seeks some advice)

I’ve got 71 years left on my lease and pay £75 ground rent, i’ve been quoted a £9000 (ish) premium for going down the statutory route but I can’t find any examples online on what sum I should be looking at to just extend my current lease to 99 years.

I’m thinking £2000 and double the ground rent to £150 as an initial offer.

Any thoughts or comebacks?

Member

Hi

I am in the processing to trying to negotiate the lease extension premium with the freeholder before purchasing the property. He initially quoted £50,000 plus £200 ground rent and his legal fees. I emailed him back and asked for it to be reduced to £40,000 with zero ground rent. He has come back with an offer of £45,000 and £200 ground rent and legal costs. I still think this is too high. What should I do now? The flat has 47 years left on it.

Profile photo of John Ward
Member

Because you do not own the property you are not in very strong position to get the freeholder to give up any more than has already been offered. It is unlikely that you would ever get a nil ground rent so any bargaining would have to be around the capital sum for the lease extension. You have already indicated that you would pay £40,000 and the freeholder has split the difference. I think the choice is either to walk away or to pay up if you really want theflat [but you could put the problem to the seller and see if they would meet you half way and chop £2,500 off the price]..

Member
jessica says:
30 January 2015

I have 70 years left on my flats lease.its worth around £375K wonder what is a reasonable amount to offer landlord to extend to 99 years. i live in south east london.

Profile photo of John Ward
Member

I doubt if you could get a competent answer to your query through this website since a lot more information would be required and some local knowledge. The main article above explains how to go about it – either by the formal legalistic route, or by informal agreement with the freeholder if they are amenable to such an approach [possibly not if it is a commercial property company]. In the first instance it would be advisable to contact the freeholder and enquire. Depending on the age and condition of the property it might be worth considering seeking an extension of the lease to 125 years – more expensive, but more valuable when you come to sell.

Member
BC says:
2 June 2015

I have just asked a well respected local surveyor to do a valuation of my flat so I can extend my lease. It is a spacious 2 bed in London Zone 2. When I was thinking of selling last year at the peak of the market of 2014 Foxtons valued it at around £700,000, which I thought was a little ambitious, and thought £650,000 – £675,000 was more realistic.
My surveyor has come back with the 3 valuations of 650,000, 700,000 and 800,000 which is much more than I thought, and much less affordable to extend (it is currently at 82 years) at between 14,000 and 17,000 plus costs. I can’t believe it would currently achieve 800,000 by any stretch of the imagination but I don’t want to pay another surveyor as it is so costly.
Is this just how it works? Why would my own surveyor over-value it so much?

Member
Ross says:
4 August 2015

Do I need to take legal advise when buying the freehold of my house from the local council? The house has around 940 years left on the lease and the council have offered to sell the freehold for £400 including fees. I was under the impression I wouldn’t need legal advise as this is the council and I own the house not rent it. Any help would be great, thank you

Profile photo of John Ward
Member

Legal advice would be a protection for you to make sure that the council’s legal work is done correctly, that the property’s title is good, and that the registration of the property as freehold is completed correctly. Even though you currently have a very long lease which is almost as good as a freehold, acquiring the freehold is probably worth it to get complete control of your own home and it can’t fail to enhance the market value over the longer term. Whether £400 is a fair price depends on the amount of the annual ground rent that the council would be surrendering but since that price includes the council’s fees it looks favourable to me; it might not be negotiable if the council is offering freeholds to other leaseholders and seeks consistency. If you don’t buy the freehold yourself there is the possibility that the council could sell it on the open market to an investor. Bear in mind that in purchasing the freehold you would be taking on full responsibility for structural maintenance; if there is anything that needs fixing on the roof, chimney, walls and services see if you can get the council to do it before you complete the purchase. Legal advice would certainly be useful over these aspects.

Member
Islay says:
8 August 2015

My solicitor went straight to the freeholder and ive now paid for their valuation and returning their slip accepting the price. However , reading other sites I find my solicitor hasnt issued my intend and should have suggesting we get a ‘worse and best’ case scenario valuations BEFORE going to the freeholder. Now we wouldnt be able to negotiate ….The flat is worth 85k with new lease. Has 69years to go and they want £6045 . Do you think I was badly advised? Also the freeholders solicitors fee seem very high to handlee the renewal. They want £950 +vat….is that a fair price as it seems high to me…

Profile photo of John Ward
Member

I think you should put these questions directly to your solicitor. It’s almost impossible for any outsider to judge without full knowledge of the circumstances.

Member
Abi.kacemi says:
28 August 2015

I have a 2 bedroom flat in London zone 3 valued at 320k with a 65 year lease left. I have owned the flat for more than 2years, I have contacted the freeholder in regard to extending the lease and he came back to me with a figure of 35k for 90 year and nil ground rent. Anyone who can help on how much I should offer him, and any tactics to negotiate

Profile photo of John Ward
Member

The short remainder of your lease depresses the market value of your property, and in fact it could depreciate over time even if property prices generally continue rising. The freeholder is getting an annual income from your flat in the form of ground rent and would surrender that income if you bought the new 90 year lease lease with nil ground rent. Between the two is the right level for your offer but the freeholder is in the stronger position. Depending on how much the annual ground rent is currently you could try a bid of £25,000 for a 99-year lease, or even a 125-year lease. That gives both parties some room to manoeuvre on both sides of the deal. Something around £30,000-£35,000 for a 99-year lease might be a good outcome, bearing in mind that the longer lease is probably more valuable than the nil ground rent to a prospective purchaser and makes the property more mortgageable.

Member
Fred says:
6 November 2015

Hi, I have a lease with 44 years left . I had a surveyors estimate to offer £35,500
to my landlord for a extension of 99year lease with a nil ground rent. I offered
£30000. They came back with a asking offer of £42,500 plus £300 ground rent
doubling every 25 years, what should I do? ps. I paid for my landlords survey.

Profile photo of Rina
Member

Dont agree to this, as if you went through the formal route, I believe the ground rent would be granted at nil

Profile photo of Lenny
Member

I live in a block of leasehold flats. The freeholder is a company in which all the shares are owned equally by all the leaseholders. The company (in effect the leaseholders) wants to extend all the leases and presumably all the leaseholders want to too. Is it necessary to incur any costs? Or what costs are absolutely unavoidable?

Member
Sharon says:
27 December 2015

This question is very pertinent to me as I am in the same position. Am I right in assuming that as I dont need to pay to extend the leasehold that the solicitors costs will be minimal ?

Member
Matt says:
15 January 2016

I bought a flat which had just over 70 years left on the lease. The whole block was supposed to be in the process of buying the freehold, so took a risk that this would go through. It didn’t! In the end I sold-up, but it cost around £16,000k to extend the lease to get full market value. I was lucky that the flat had appreciated enough to more than cover this and make a tidy profit, but I wish I’d had more information about the costs before I bought… my solicitor at the time just phoned up right at the end of the process and said something like “Are you OK with the lease being below 80 years?” But did not explain the full implications of this. Nowadays there’s so much more information about this. I learned a life lesson and got out of it OK, but some people get trapped by these situations, so great to see this getting publicity!

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Profile photo of Pren
Member

Hello,

We are in the process of wanting to extend the lease on our flat.
We have owned our flat for 1 year and nine months and need to extend our lease this year as it has approx 81 years outstanding.
Along with 2 other lease holders we have approached the freeholder to extend our lease.
The management company have come back with an offer of extending the lease to 112 years at a cost of £10,000 raising the ground rent from £100 a month to £150 for the first 25 years and then by another £150
This seems absolutely ridiculous to me.

What should we go back with informally?

Profile photo of Lauren Deitz
Member

Hi Pren,

Thanks for your comment. It might be useful to try the Leasehold Advisory Service, there’s a calculator to estimate the price of a lease extension here too http://www.lease-advice.org/

Member
vlc says:
23 May 2016

Is the process for a DIY extention where one owns a share of freehold explained anywhere? I’ve seen mention of a re-grant where only the date is being changed.

Profile photo of John Ward
Member

Vic – If you are having complications with a share of a freehold, not a leasehold extension or maintenance issue, it might be best to seek professional legal advice.

Member
julia says:
2 August 2016

I have recently agreed to the landlords lease extension offer, and ignorantly failed to read that the ground rent would have to double every 25 years, is it to late for me to now go down the formal route as the property management company say the landlord is not prepared to compromise on a fixed ground rent. Any suggestions please confused and stressed

Profile photo of John Ward
Member

Since the ground rent is the only income the freeholder gets on the property they own, and it is usually quite a small sum relatively, doubling it every twenty-five years does not seem unreasonable. That will outlast most leasehold ownerships, and for a current leaseholder it will give certainty of the annual expenditure at today’s values for a considerable period into the future. The lease extension improves the marketability of your property and the change in the ground rent terms is part of the price for that.

Member
Elizabeth Nolan says:
12 June 2017

I bought my flat (1 of 2 in a Victorian conversion) 25 yrs ago and with ‘absent freeholder’. In 2007 the person owning the other flat texted saying she’d bought the freehold and did I want to buy half. She is ‘difficult’ to say the least and I didn’t actually believe her; how could she have bought it without my knowledge, and from whom? On applying to remortgage I learn that my lease now only has 60 yrs left and that the other owner did indeed buy the freehold in 2007. (I’ve never received any documentation from her re. this). Can ‘I force’ her to extend my lease or to sell my share to me for the same amount as she paid? All advice welcomed, thank you.

Member
Joe says:
27 June 2017

Hello, our leasehold has just 40 years left. Quote to renew is 70K+ (seems excessive to me, but was done by chartered surveyor). How do I verify this is the correct valuation – other comments here have a lower lease renewal cost and similar term.
Flat worth 325K, peppercorn rent paid at the moment.
Many thanks, Joe

Member
robin jones says:
7 August 2017

Dear all.
We are leasehold practitioners and Chartered Surveyors in London and we see these same questions and concerns arise time after time.
It is a complex area of valuation and law and is not really suited to the DIY approach.
If you do not understand leases do not negotiate on them. It can be a costly mistake. You will not be able in most cases to determine whether an informal settlement is fair and reasonable [nb; it doesnt have to be either outside the Act] as there is no initial point of reference.
A statutary extension protects you as it gives you a defined 90 years extra and removes the ground rent provision. However there are different rules for leasehold houses.
Most firms including ours will give you 15-20 mins off the clock if you have an issue with a short lease so take advantage.
As the old addage goes; “If you think a professional is expensive wait till you see what an amateur costs you..”
Good luck.

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