Lease Extension Explained


A lease extension can significantly improve your leasehold property’s value and make it cheaper for you to own. 

Leasehold properties are becoming more common in the UK, with most flats being leaseholds. 

If you currently own leasehold interest, there are many things to learn and understand before you get a lease extension. Here’s a complete guide on all you need to know so that you’re equipped with the knowledge that can allow you to benefit from a lease extension. 

In this guide

What is a lease?

A lease is a type of property ownership, and is different from a freeholder, the more mainstream method of home ownership. In a lease, you own a property for a set period. Once this period expires, the ownership is handed back to the freeholder. 

As a leaseholder, you only own the property, not the land that the property is on. The freeholder still retains this. This can mean you have a few restrictions on what you can do with the property and land. In certain situations, a leaseholder must pay the freeholder an annual ground rent payment. 

Most leasehold properties in the UK are flats, with around 58% of all flats in the UK being leasehold. This is because most flat buildings are freeholders, and each unit is sold on a lease. 

What does a lease extension do?

When you get a lease extension, the remaining lease term increases, meaning it expires later. This can help prevent your lease from expiring, meaning you don’t have to give back ownership to your freeholder. 

When you get a lease extension, you can extend your lease by 90 years if you’re a flat owner or by 50 years if you’re a homeowner. 

To get a lease extension, you’ll have to pay a fee. This fee is determined by the value of your home and a formula defined by the Leasehold Reform, Housing and Urban Development Act 1993. This means that the amount you pay is fair and universal for everyone in the country. 

This act defines how long you can increase your lease, and all leaseholders have the right to a lease extension as long as they meet eligibility criteria. 

A lease extension can create a lot of great benefits for leaseholders. When you get a lease extension, it can help increase the property’s value and prevent you from having to spend as much money each year on the property. 

Because it has the potential to both save and make you money, getting a lease extension can be one of the best investments you make on your leasehold.

Why should you get a lease extension?

You should get a lease extension for multiple reasons, with the benefits changing depending on your situation. Here are a few things that happen once you get a lease extension that make it a great idea to get a lease extension soon: 

Increases the value of your property

One of the main benefits of getting a lease extension is that it will boost your property’s value, helping you get as much as possible when you decide to sell it. Leaseholds drop in value the fewer years are left on their lease. This means a property with only 85 years left will be worth much less than the same property with 175 years left. 

Getting a lease extension will add a significant amount of extra years to your leasehold, thus meaning that you’ll be able to sell your property for more. This helps protects your investment and ensures that if house prices rise, you’ll benefit from that too. 

It makes it much easier to sell 

A lease extension will also make it much easier for you to sell your property. Not only are leaseholds with a significant lease term more desirable and sought after, but leaseholds with too short of a lease are almost impossible to sell, 

Some mortgage providers may not mortgage potential buyers if the property they buy has less than 80 years on the lease. These properties are considered too risky, so many lenders will avoid them, limiting the options. As buyers will have more limited mortgage options, you’ll have a smaller pool of potential buyers. Plus, people who can afford a property without a mortgage will likely be looking elsewhere. 

Extending your lease makes it easier for buyers to get a mortgage on your house, thus making it easier to sell. 

It prevents you from paying ground rent 

If you bought a leasehold before the end of June 2022, you’ll pay ground rent on the property. This is an annual fee you must pay your freeholder, making owning a leasehold more expensive. 

Since the end of June 2022, ground rent has been abolished, meaning new leases do not have to pay it. To benefit from this change, you can extend your lease, thus creating a new contract to reduce your ground rent to zero. 

Doing this can help you save a lot of money, especially if you plan to live in the leasehold for a substantial number of years. 

Do note that the more ground rent you pay, the more expensive the lease extension will be. A surveyor will be able to work out if getting a lease extension makes financial sense in your situation. 

It stops you from having to pay marriage value 

If you leave it too late to extend your lease, you’ll have to make a 50% marriage value contribution. This is why getting a lease extension early is really important and super valuable. 

Marriage value is the amount your property is worth after a lease extension minus its original value. This can be a lot of money, and if you extend a lease under 80 years, you have to pay 50% of this. 

This can make your lease extension super expensive. So, to make things cheaper and better for you, extend your lease before it drops below 80 years to make savings. 

How do you get a lease extension?

As a leaseholder, you have the legal right to extend your lease. That said, it doesn’t mean it will be easy to do. To get a lease extension, you must meet certain eligibility criteria, create and serve specific documents, and follow a strict process to ensure you do it all properly and legally. 

Here’s everything you need to know about how to get a lease extension so that you know what needs to be done to start the process. 

The lease extension process

To ensure that you follow the guidelines and rules outlined in the 1993 act, you should follow an ordered and well-defined process, only moving on to the next step when the previous step is complete. 

This process can be long and take up to 12 months, depending on certain circumstances, so be sure to start it soon so that you’re not waiting around for it to end before you can sell your property. The process you’ll follow will look something like this: 

To start, find a lease extension surveyor and then instruct them to complete a property inspection of your leasehold. At this inspection, they can work out a valuation of your property, which is used to determine how much your lease extension will cost. 

Once a surveyor has worked out the amount you’ll have to pay, you’ll be informed of this amount. You’ll likely receive a range of what to pay, allowing you to negotiate with your freelancer. Once you decide how much to pay, you must serve a Section 42 Notice to the freeholder. This notice informs your freeholder of your plans and how much you want to pay. A surveyor must serve this notice.

The freeholder has two months to respond. They’ll reply through a Section 45 Notice, where they will either completely accept your offer, reject it, or return with a counteroffer if they feel it needs to be higher. 

Once a price has been agreed, you must pay a deposit to confirm your lease extension. This needs to be paid within 14 days. The price of this deposit will vary between the larger of £250 or 10% of the lease extension cost. 

If your initial offer is rejected, you have six months to negotiate a price with your freeholder. If you can’t reach an agreement before six months, you’ll be advised to apply for a Top Tier Tribunal. Here, officials will assess your case and issue a final price that both parties must agree to. This price will likely be more than your valuation. 

Although it may seem that most of this process is spent negotiating a price with your freeholder, it’s important to remember that you’re never at risk of having your lease extension request rejected. Although they can push back on the price, once you get a decision from a First Tier Tribunal, that amount is set and must be agreed to. 

The Leasehold Reform, Housing and Urban Development Act 1993

When getting a lease extension, everything you do must follow the Leasehold Reform, Housing and Urban Development Act 1993 (the 1993 act). This act gives you the legal right to a lease extension and contains all the rules and guidelines everyone must follow. It’s designed to give leaseholders more legal protection and control over the lease extension proceeding, as it prevents the freeholder from denying a lease extension as long as you’re eligible for one. 

Per the act, you can extend a lease by 90 years if the property is a flat and 50 years if it’s a house. As well as this, the act also includes the formula that must be followed when working out how much a lease extension will cost, ensuring that you always pay a fair price. 

The Section 42 Notice

One of the most important documents you must create and send during the process is the Section 42 Notice. This document is served to the freeholder, informing them of your intention to get a lease extension. As well as this the notice will also contain the amount you want to pay for the extension. 

A lease extension solicitor will send this document on your behalf and may also help you draft it. For a lease to be extended, the freeholder must respond to the Section 42 Notice, either agreeing to the price or suggesting a counteroffer. They have two months to do this. 

A Section 42 Notice must contain certain details for it to be legally binding, so make sure not to miss out on vital information. A lease extension surveyor can help you when drafting this notice, making sure that it’s quality. 

The information you need to include in a Section 42 Notice is: 

  • Your full legal name 
  • The leasehold’s address
  • Appropriate information about the property so that it can be identified 
  • Details about the lease, like its start date and remaining term
  • How much you want to pay for the lease extension
  • The date the notice was sent and the date a counter-notice is due

Lease extension eligibility

You must pass some eligibility criteria to get a lease extension in the UK. You must meet the following requirements for a lease extension per the 1993 act. 

The first criterion is that you must have been the registered owner of the leasehold for at least two years. If you’ve just bought the property, you must wait a few years before getting a lease extension. 

The second requirement is that the lease term of the property when you started the contract must have been over 21 years. As long as it is 21 years, you can extend your lease no matter how long is remaining; it will just cost a lot. 

If you meet these two criteria, you can get a lease extension. However, also be aware that you can’t get a lease extension if the freeholder is a charity and if the lease is commercial. 

Who's involved in a lease extension?

When getting a lease extension, various parties and people must contribute to the process, as they’re needed to either provide services or decide how you will proceed. 

Knowing all the different types of people involved is useful, as it can help you prepare for the experience. Also, knowing what to expect from each individual can help you track your progress and double-check that everyone is completing their duty. The people who will be most involved in your lease extension include: 

The freeholder 

You’ll be paying the lease extension fee to this person. A freeholder is the person who owns the land that the leasehold is on and is likely the person who has sold the lease to you. In most cases in the UK, the freeholder will own the building a flat unit is in, leasing out the individual units to all the residents. 

A freeholder is essential during the lease extension process because they’re the individuals who need to respond to your Section 42 Notice, and it’s who a surveyor will negotiate a price. A freeholder can initially reject your offer and ask for more money for the lease extension. Still, ultimately they must agree to the final price if it’s been set by a Top Tier Tribunal.  

A surveyor 

A lease extension surveyor is one of the most vital parts of the lease extension process. This is because they’re needed to complete multiple tasks. Without them, you won’t be able to get through the process and may hit a few stumbling blocks. 

Your first encounter with a lease extension surveyor will be right at the beginning when you instruct them to complete a property inspection. This inspection allows them to determine the value of your property, which they then use to help them come up with a price you need to pay for your lease extension. 

As well as this, a surveyor will also be used to help you figure out the price you want to offer your freeholder and assist with any negotiations that you may be drawn into. A surveyor is the only party who can serve a Section 42 Notice, too, meaning that you need them to be able to deliver this vital notice to your freeholder. 

Some surveyors can also help you during the drafting phase of the Section 42 Notice, making sure that it includes all the required details and information. 

A solicitor 

You may decide not to get a solicitor for your lease extension, but they’re very useful as they can save you a lot of hassle and make the legal process easier for you. A solicitor will give you legal advice as and when you need it, reading through contracts, lease agreements, and more to ensure nothing is missed. 

If your case is taken to a tribunal, they can help you prepare for that, organising applications and any required documents. In addition, a solicitor is also needed to go through and sign off on the new lease document, and they’re also responsible for registering it with the land registry. Solicitors may seem unnecessary initially, but they’re a party that can make this process easier for you. 

Property chamber officials

You’ll only experience correspondence with the property chamber if you can’t reach an agreement with your freeholder and need an overruling decision on how much to pay for your lease extension. The property chamber will set up a First Tier Tribunal to review your lease extension request and valuation and give a final verdict on the price. 

It can take a few months for a First Tier Tribunal to reach its decision, meaning that working with property chamber officials can drastically prolong your lease extension request.

How much does it cost to extend a lease?

The amount you need to pay for a lease extension is determined by various factors which significantly influence the final price. As each property and lease is different, the amount you’ll pay for a lease extension can vary drastically, making it hard to give a ballpark figure without the required information. 

One of the main factors determining the cost of a lease extension is the property’s value, which a lease extension surveyor determines. If your property has a high value, the lease extension will cost more than if it was worth less.  

When figuring out how much a lease extension will cost, a surveyor will consider multiple variables to generate an accurate result. In addition to the property value, these variables include: 

  • How long the lease has left to run 
  • How much ground rent you’re paying, if any 
  • How much the freeholder’s interest will decrease because of the extension 
  • The location of the property
  • The yield rate of the property

Based on all these factors, a lease extension can easily cost under £1,000 or exceed £20,000. To help you figure out a rough estimate that can help you better pinpoint the price you’ll pay, use a lease extension calculator to help you figure out a loose fee. This calculation won’t be perfect as it won’t be able to have all the information that a surveyor does, but it can still be a great starting point when getting a lease extension. 

Extra Lease Extension fees

You don’t just have to pay the cost of the lease extension, as there are other fees that you need to consider and add to the final price of this service. It’s best to keep these in mind so that you’re not surprised by any bills you may receive at the end of the process. Here are some fees you may have to pay depending on your situation.

Surveyor and solicitor fees

You’ll often use a surveyor and a solicitor during the lease extension process. A surveyor will value your home and help with negotiations with your freeholder, and a solicitor will help with any legal advice and is needed to review the updated lease and register it with the land registry. 

These services aren’t free, meaning you’ll have to pay them for their services. The fees can alter a lot between the companies and specialists you choose to work with, so review the market to find the right professionals that work within your budget.

Freeholder fees 

As well as your own legal fees and surveyor costs, you’re also liable for paying any fees that that freeholder has accrued during the process. This means that if they send someone to get their valuation or hire their own solicitor, you’ll have to cover these expenses as well, as long as it’s reasonable. 

These costs can rack up quickly, and it’s not unlikely that you’ll have to pay a few thousand pounds to cover the freeholder’s fees. 

Marriage value

Depending on when you get your lease extension, you may have to pay 50% of your marriage value on top of any other fees. The marriage value is the amount your property increases after a lease extension. So for a flat that went from £200,000 to £235,000 after a lease extension, your marriage value will be £35,000. 

This means paying 50% of this will increase your total fees by £17,500, dramatically increasing the amount you have to pay, potentially making a lease extension a financially unviable prospect. 

You only need to pay marriage value if you get a lease extension when the remaining term drops below 80 years. This is a major reason why getting a lease extension early is best to avoid this fee. 

Stamp duty 

Most leaseholders won’t have to pay stamp duty, but it’s still worth being aware of it, just in case you’re the exception. Currently, if your lease extension is only on your main property that is used for residential use, you don’t have to pay stamp duty on the first £125,000 of the extension’s cost. 

Lease extensions can be expensive, but most won’t ever cost that much, meaning that you won’t have to pay stamp duty in this scenario. 

However, if you own more than one residential property, you must pay a 3% stamp duty when getting a lease extension. That said, you only have to pay 3% if the lease extension premium is over £40,000, which is higher than the national average. Plus, if the premium costs more than £125,000, then the stamp duty rate is higher than 3%. 

This is a simple explanation of how stamp duty affects lease extensions. To fully understand if you need to pay, it’s best to get a solicitor who can break things done for you in a bespoke way. 

Lease extension formula

To make it easier for surveyors to work out the costs of your lease extension and ensure that the amounts people pay are universal across the country, a formula is used to generate an accurate and fair valuation. The 1993 act sets out this formula and needs various pieces of data to be inputted, which is why you need a surveyor to gather this data. 

This formula is complicated to follow and involves algebra and some sophisticated equations. It also includes multiple steps and mini-formulas to determine the values that must be plugged into the main formula. This is why it’s best to let a surveyor or online calculator work out the value, as this will make it a lot easier. 

For the formula to work, you need to work out the following parameters before you can begin: 

G: the ground rent (pounds per annum)

T: the time left on the lease (in years)

v: the current value of the property (pounds)

V: the value of the property after lease extension (pounds)

ε: the yield rate (so ε = 0.05 is a 5% yield rate)

Both a lease extension surveyor and Top Tier Tribunal operatives will use this formula to determine how much your lease extension should cost. However, you will likely pay more when getting a price set by a Top Tier Tribunal as despite the formula being the same, the values they put into it may differ based on their findings and valuation.

Are lease extensions changing?

There have been new proposals within the UK government to make extending a lease easier, giving more control and power to the leaseholders. These changes are said to help save homeowners £1,000s, although details are still a little vague, and there’s no known date when any of these plans will come into effect, if at all. 

Here’s a look at some of the proposals that the public knows so far and how these will change lease extensions in the future: 

You can extend your lease by 990 years. 

You can only extend your lease by a maximum of 90 years each time. Changing this to 990 years will drastically alter how leaseholds operate, making them much more secure investments and ensuring they maintain a consistent value over the years. That said, this proposed 990 years will likely be chipped away at and reduced by the time any new legislation comes into effect. 

Alter marriage value 

Ground rent was already removed in 2022, and another costly expense is planned to be changed in the future. Although nothing is certain, there are discussions that marriage value contributions can be lowered. 

There is no definitive timetable for when these changes will come into effect, so don’t wait around for them before extending your lease, as it could drag on for years.

Lease Extension FAQs

There's no specific point in time you need to wait till before you extend your lease, as every situation is different. However, there's a point in your lease length that you don't want to exceed, as this will make getting a lease extension much more expensive. 

It's widely believed that you should get your lease extended before the term length drops below 80 years, with many suggesting that you should get things sorted a couple of years before this point. 

The reason for this is simple; extending a lease with less than 80 years to run costs much more. You have to pay half your marriage value when it reaches this point, which can easily add an extra £10,000 or more depending on the value of your property. 

The sooner you get a lease extended, the better, as it will be cheaper to do and benefit you greatly. 

You can extend a lease multiple times for the same property if you're willing to pay each time and repeat the process. That said, it's unlikely that you'll need to extend a lease more than once. 

This is because when a lease reaches a certain number of years, adding more doesn't affect the value as dramatically. For example, a property with a lease of 150 years will be worth almost the same if it had a lease of 240 years. 

Plus, as a lease extension can be long, you'll likely have moved on from the property before the term drops back to a low value. 

You can't get a lease extension without a surveyor. This is because they perform various tasks throughout the process. 

For example, you need a surveyor to give your property a valuation, and you also need them to serve a Section 42 Notice. Without them, you simply won't be able to get a lease extension.  

As well as their vital services, they offer additional support to make things easier for you.

You need to contact your freeholder to send them a Section 42 Notice. You may struggle to get a lease extension if you can't reach them. Thankfully, you can get a Vesting Order if you can't find them, which allows you to continue your lease extension through the legal system. 

However, to get a Vesting Order, you need to provide evidence that you've tried to contact your freeholder. Some things you need to do before applying for a Vesting Order include the following: 

  • Putting up adverts in the local newspaper 
  • Hiring a search agent to find them 
  • Visiting the last known address of the freeholder 
  • Checking the probate records

The main reason why you need to pay for a lease extension is that when doing so, you're reducing how much a freeholder can earn on their property. This means that they need to be appropriately compensated for the extension. 

For example, when you extend the lease, they'll lose out on potential interest and more. Think of paying for your lease extension as paying for a service.

When getting a lease extension, the 1993 act dictates that you can add 90 years on a flat or 50 years on a house. This means these terms are both the minimum and maximum you can add to your lease. 

However, things change if you don't meet the eligibility criteria for a lease extension under the 1993 act. In this case, the freeholder has control over how long you can extend your lease, and they can offer really short terms.

A lease extension calculator can be a great way to estimate how much a lease extension will cost. Getting a lease extension can be a great starting point if you're curious and want to start narrowing down how much things will cost. 

Just be aware that the results from an extension calculator can't be as accurate as a surveyor's valuation. This is because the calculator will not have as much information and will be unable to adjust the offer based on your location. 

Your final price will likely be a bit different from what you quoted through a lease extension calculator, but it should be in the same ballpark, letting you know what figures you should expect when starting the process. 

As your property's value heavily influences the cost of your lease extension, it does mean that houses and flats in more expensive areas will usually cost more to extend. For example, getting a lease extension in Central London will usually cost more than getting one in Stoke, even if the houses and lease terms are the same. 

When getting a lease extension, it is worth considering how your area will affect the total costs. You should also think about the specific area of your property and not just the region it's in. For example, when comparing two properties in Bromley, the one closer to transport links and schools will be worth more and thus cost more to get an extension. 

You can still get a lease extension if you're not eligible under the 1993 act. However, this will have to be an informal lease extension, which means you don't have the protection the act affords you. 

When getting an informal extension, your freeholder can refuse your request. They can also ask for an inflated fee and only extend your lease by a couple of years. 

Getting a lease extension can be a great way to improve the value of your home and help you earn more money, but it's crucial to analyse your situation before deciding if it's worth it for you. 

For example, sometimes, the increase in property value is less than the cost of the extension, meaning that you won't be getting any profit for doing so. This issue is most common for those paying half of their marriage value. 

Plus, if you're already not paying ground rent, getting a lease extension may not be as beneficial, as you won't feel the effects of having your ground rent reduced to zero. 

A surveyor will be able to assess your situation to see if a lease extension is a good option for you.