What Is a Leasehold Extension and How Do You Apply for One?

A leasehold extension is the process by which a leaseholder extends the term of their lease, typically under the statutory right contained in the Leasehold Reform, Housing and Urban Development Act 1993. A lease extension is important because as a lease gets shorter, the property becomes harder to sell and mortgage, and the cost of extending rises sharply once the lease drops below 80 years.

Who Has the Right to a Statutory Lease Extension?

To exercise the statutory right to a lease extension under the 1993 Act, you must own the flat under a long lease of more than 21 years, have owned the flat for at least two years, and the flat must be in a qualifying building. The vast majority of residential leaseholders in England and Wales satisfy these conditions.

What Do You Get?

A statutory lease extension adds 90 years to the unexpired term of the current lease and reduces the ground rent to a peppercorn, effectively zero. For a lease with 70 years remaining, a statutory extension would produce a new lease of 160 years at zero ground rent.

How Is the Premium Calculated?

The premium payable for a statutory lease extension is calculated by reference to a formula set out in the Act. The key components are the diminution in the value of the landlord's interest caused by losing ground rent, the landlord's share of the marriage value where the unexpired term is below 80 years, and any other loss suffered by the landlord. The premium is a matter for negotiation and, if not agreed, determination by the First-tier Tribunal.

The Importance of Acting Before the Lease Drops Below 80 Years

Marriage value, which is the additional value created in the property by extending the lease, is only payable to the landlord where the unexpired term is below 80 years. Once the lease drops below 80 years, the cost of extending increases significantly because the leaseholder must pay the landlord half of the marriage value. Acting before this threshold is passed saves money.

How Does the Process Work?

The leaseholder serves an initial notice on the landlord specifying the terms of the proposed extension and the premium offered. The landlord has two months to serve a counter-notice accepting the proposal or making a counter-proposal. If agreement is not reached, either party can apply to the First-tier Tribunal to determine the premium. The whole process typically takes between six months and two years depending on whether the premium is agreed or contested.

Summary

Leaseholders with at least two years of ownership have a statutory right to extend their lease by 90 years at zero ground rent. The premium depends on the remaining term, with costs rising sharply below 80 years due to marriage value. A specialist property barrister can advise on the valuation and represent you in any tribunal proceedings.

Getting the right advice early can make a significant difference to the outcome of your case. Reach out to the Barrister Connect team today.