How Much Does Extending a Lease Cost in 2024?

Nikka Sulton

How Much Does Extending a Lease Cost in 2024?

A lease extension is a legally binding agreement between a freeholder and a leaseholder, enabling the leaseholder to prolong their stay in the property for an extended period. This extension often enhances the property’s value and facilitates its sale. However, the process of extending a lease can be both lengthy and costly, with expenses varying based on factors such as property value, remaining lease duration, ground rent obligations, and the freeholder’s stance.

What is a Lease Extension?

Owning a leasehold property grants the right to reside in a property for a specified duration rather than owning the land it sits on. The land is typically owned by a freeholder or landlord, who imposes a ground rent. Leases for flats commonly span 99 or 125 years. While technically the property reverts to the freeholder or landlord at the end of this period, in practice, lease extensions are typically sought well in advance.

When extending a lease, a premium is payable to the freeholder, compensating for the extended wait for possession of the property and the cessation of ground rent payments.

When Should You Extend your Lease?

It’s advisable to consider extending your lease before it dwindles to 80 years or less. There are two primary reasons for this: Firstly, the cost of lease extension escalates annually, with expenses rising more rapidly when the lease term drops below 80 years. Secondly, securing a mortgage or remortgage becomes increasingly challenging when the lease has less than 70 years remaining. If you intend to sell your property, or have plans to do so in the future, potential buyers may be deterred by a short lease. Therefore, it’s prudent to extend your lease before putting your home on the market.

The premium for lease extension is partially determined by the property’s value – higher property values result in higher lease extension costs. Consequently, it may be advantageous to extend a lease during periods of declining house prices, if feasible.

How Much Does Extending a Lease Cost in 2024?

If you’re a flat owner, chances are it’s leasehold – with over 4 million leasehold flats in England and Wales alone, it’s the predominant form of flat ownership. As a leasehold flat owner, you essentially rent your property for a specified period because you don’t own the building itself. As the years remaining on your lease diminish, considering a lease extension becomes imperative, and procrastination isn’t advisable. Once your lease dwindles to 70 years, your mortgage rates will rise.

By the time it reaches 60 years, remortgaging becomes exceedingly challenging. Consequently, your flat’s value depreciates, making it harder to sell. However, there’s a silver lining: under the 1993 Leasehold Reform Act, the majority of flat owners have the legal right to extend their lease by 90 years at a fair market price. So, what should you anticipate paying?

How much does a lease extension cost?

The cost of extending your lease hinges on several factors, such as your flat’s value, the remaining lease duration, the number of years added (typically 90), and negotiation terms. Crucially, the fewer years left on your lease, the higher the extension cost. Notably, once your lease dips below 80 years, you’ll be liable to pay 50% of the flat’s ‘marriage value’ atop the extension cost, reflecting the added property value. Additional expenses include the lease extension valuation, legal fees, and stamp duty if the extension surpasses £125,000.

Legal fees encompass not only your advisory costs but also reasonable fees for the freeholder. However, it’s essential to clarify that negotiating expenses shouldn’t be included in your payment. Typically, legal fees amount to approximately £1,600 to £2,100. To ascertain a more precise extension cost, engaging a surveyor for valuation, priced at £400 to £900, depending on your flat’s value, is recommended.

Many lenders are open to extending mortgages for lease extension payments, provided there’s sufficient mortgage capacity and you meet repayment obligations. Importantly, a lease extension can substantially elevate property value. For instance, with 85 years remaining on a lease, an extension may add £5,000 to a £200,000 flat, while at 60 years remaining, it could increase value by approximately £38,000.

In summary, consider a lease extension when around 83 years remain on your lease, typically adding 90 years to its duration. Factor in legal fees, valuation costs, and potential stamp duty if applicable. Remember, accurate costs may vary based on individual circumstances, so consulting professional tradespeople for tailored quotes is advisable.