If you own a leasehold flat, the length of your lease directly affects its value and mortgageability. Properties with fewer than 70 years remaining on the lease can be difficult to sell and impossible to mortgage with many lenders. The law gives most leaseholders the right to extend their lease, but the process has its own rules, costs, and risks.
The statutory right to extend
Under the Leasehold Reform, Housing and Urban Development Act 1993, most leaseholders have a statutory right to extend their lease by 90 years at a nil ground rent. To qualify, you must have owned the property for at least two years. The extension is added on top of whatever term remains — so a flat with 80 years remaining would become 170 years after extension. Ground rent is reduced to zero for the extended term.
How much does it cost?
The premium for a statutory lease extension is determined by a statutory formula that accounts for the existing lease length, the ground rent, the value of the property, and the marriage value if the lease is below 80 years. Marriage value — the increase in value resulting from the extension — must be shared 50/50 between freeholder and leaseholder where the lease is below 80 years, which is why acting before this threshold is important. You will also pay your freeholder’s reasonable legal and surveyor’s costs.
The statutory process
You serve a Section 42 notice on your freeholder proposing a premium. The freeholder has two months to respond with a counter-notice. The parties then have six months to negotiate. If they cannot agree, either party can apply to the First-tier Tribunal (Property Chamber) to determine the premium. The process typically takes 6–18 months.
Informal route
Many leaseholders negotiate a lease extension informally with their freeholder — without serving a formal Section 42 notice. This can be quicker and cheaper if the freeholder is cooperative. The risk is that without the statutory process, you have no guaranteed right to a 90-year extension at nil ground rent, and the freeholder can withdraw at any time. Always take legal advice before agreeing informal terms.
Leasehold reforms
Significant leasehold reform legislation has been progressing through Parliament, with proposals to make it cheaper and easier to extend leases and to abolish ground rents for existing leases. The position is evolving — a specialist solicitor will advise on how the current and forthcoming rules affect your situation.
Lease extension negotiations can be complex. A specialist solicitor and a surveyor experienced in leasehold valuations will ensure you pay a fair premium.