Specialist leasehold solicitors and the price you need to pay for your lease extension
If you decide to extend your lease, you are likely to come across the following costs:
- the premium i.e. the amount you will to pay to your freeholder to extend your lease.
- The landlord’s own reasonable legal fees and valuation fees (you are able to challenge these fees in the First Tier Property Tribunal should you feel that they are too high);
Your own legal and valuation costs and disbursements;
Do you want to extend your lease ? Looking for Specialist Solicitors? Call us on FREEPHONE 0800 1404544 for FREE Initial Phone Advice.
What happens if there’s a dispute over the level of premium or my freeholder’s costs?
Fortunately only a small number of cases actually make it to Tribunal. In our experience that is often as few as 1 or 2 in 100. 1 of the main reasons for that is that both parties have to pay their own costs and can’t claim costs back from the other party. And going to a tribunal to argue your case can prove expensive – especially if you need a solicitor or barrister with you in addition to the specialist valuation evidence which your surveyor will provide.
And that’s why the vast majority of cases settle – with surveyors on either side able to agree on a premium which is usually a fair compromise between the costs sought by the freeholder and the price the leaseholder was hoping to pay.
That’s also why in general terms freeholder’s surveying and legal costs are reasonable – as they understand the expense of going to Tribunal if they try to set those fees at an unreasonably high level.
How do surveyors calculate the right premium?
The premium that you are going to need to pay to extend your lease is calculated as follows, taking the aggregate figure of:
The diminution in value of the freeholder’s interest. This is the value of the freeholder’s interest now, compared with the value of his/her interest once you have extended your lease; and
The Marriage Value; and
Any other compensation payable to the freeholder.
What is the marriage value?
Marriage value is a one-off fee that becomes operative once a lease has less than 80 years left to run. The marriage value is the increase in the value of your flat once you have extended your lease (generally speaking, a flat with a longer lease is worth more than a flat with a shorter lease). This ‘profit’ element is only achievable because the freeholder granted a lease extension and therefore he/she is entitled to 50% of the profit.
Given that the marriage value only kicks-in on leases that have less than 80 years to run, the sensible option is to extend the lease on your flat sooner rather than later, as this element of the premium continues to rise sharply the shorter a lease becomes.
Finding out how much it will cost to extend your lease – the importance of specialist surveyors
The vast majority of surveyors never deal with lease extension valuations. And to make sure that you’re not overpaying for your lease extension, it’s really important that you do get a specialist valuation from an experienced RICS surveyor. Given the thousands of lease extensions we have completed, we have been able to select an informal panel of specialist surveyors who we know are able to handle this work safely.
If you instruct us to extend your lease, we happy to introduce you to, or instruct 1 of the specialist surveyors on your behalf, as part of our one-stop shop service.
Do I have to pay the price my landlord is asking to extend my lease?
No. You can get your own lease extension valuation done and use this as evidence of what a reasonable premium would be for the extension. If your landlord unreasonably refuses to negotiate on price, then eventually you may have to refer the matter for independent determination by the First Tier Property Tribunal.
You will, however, incur further costs in using the Tribunal and your surveyor will normally seek to exhaust all other reasonable negotiation techniques before going to the Tribunal. It’s worth noting that relatively few cases are referred to the FTT in the first place – and of those that do, a significant number actually settle prior to the hearing itself.
Full First Tier Property Tribunal hearings are therefore relatively unusual in straightforward lease extension applications.
I’m selling my flat and want to extend my lease – can I pass on the costs to the buyer?
In most cases a buyer usually expects the seller to pay for the necessary expenses of a leasehold extension. However there is no reason why these costs cannot be negotiated as part of the purchase price.
You are only able to assign the right to extend the lease after having served the Initial Notice. Provided you can find a buyer who wants to go ahead with the lease extension, and is prepared to pay to extend the lease, you may well find that having a shorter lease is not a bar to selling the property.
This is particularly the case if your lease has between 80 and 82 years left to run – remember that the new purchaser will be unable to apply for their own lease extension without owning the property for 2 years – so the only way for them to obtain a cheaper lease extension (by avoiding the need to pay the marriage value), is for you to make an application before the sale of the flat (provided of course that you, have owned the flat for 2 years already).
Your solicitor will be able to provide you with more information about this process – but if you’re thinking of doing this, it’s important that any conveyancing solicitor you choose has a detailed understanding and experience of lease extension work.
Will I have to pay rent for the extended years of my lease?
If you use the formal or statutory route, then as well as next to 90 years on the lease, your ground rent is immediately reduced to what is known as a ‘peppercorn’ rent ie nothing at all.
however some people still prefer an informal lease extension rather than going through the statutory route. With effect from June 30, 2022, what is often referred to as the government’s new “ground rent ban” comes in with the Leasehold Reform (Ground Rent) Act 2022. in general terms this doesn’t apply to existing ground rents, but ensures that all ground rent for new leases are at a peppercorn ie nil.
However special rules will apply so that when a voluntary lease extension is granted, the ground rent will continue to be payable under the lease throughout the period of the original term – but as soon as original term has expired, then ground rent for that extended term is reduced to nil.
NB. When informally negotiating an extended lease, you may also be able to renegotiate certain terms of the lease with your landlord eg maintenance costs and the right to sub-lease, although you are not entitled by legal right to such amendments.
For advice about how lease extension can increase the value of your flat, contact us today
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