Category Archives: Lease Extensions

Information for leaseholders and freeholders about the process and costs of extending the lease on a leasehold property.

How do I calculate the premium payable to extend my lease?

There is statutory method set out in schedule 13 of the 1993 Act which shows how the lease extension premium will be calculated if you are buying a plus 90 year extension on top of the existing term of your lease.  This applies under the 1993 Act only.

 This is not so much of a ‘formula’ as an approach to a professional valuation set out in words in the Act.  You will still need the services of a surveyor or valuer to advise the likely premium that you will pay.

 An approximate indication can be found by looking at a ‘lease extension calculator’ such as the one that appears on the Bishop and Sewell website: bishopandsewell.co.uk/lease-extension-calculator/

Such tools are an approximate guide only but will give you a rough idea of the premium to be paid to extend your lease.

Essentially the premium depends on 3 things: the length of the lease, the capital value of the flat and the amount of ground rent that is payable under the lease.

Without going into lots of detail, the calculation compensates the freeholder for the loss of ground rent income, reflects the capital value of the freehold when the lease expires (i.e reflects the right to receive the flat back when the lease expires) and also when the lease has less than 80 years to run also includes an additional factor called ‘marriage value’ which recognises the up lifting value which occurs when the lease is extended. This splits the ‘profit’ which occurs when this has happened between the landlord and the tenant 50:50 taking into account the ‘term and reversion’ elements already accounted for in working out the compensation of the loss of ground rent and the capital value of the freehold when the lease expires.

Can the landlord insist on making variations to the lease in a lease extension?

I am undertaking a lease extension. Can the landlord insist on making variations to the lease?

The short answer to this is ‘yes,’ if the variations are necessary modernisations and the extension is being carried out under the Statute.

The 1993 Act implies certain provisions will have to be included in the new lease (these relate to the landlord’s right to terminate the lease to redevelop the building at the expiry of the original contractual lease term). There are also certain other technical clauses which must be included.

More generally, the question of whether a term can be included or not depends on whether it would be reasonable to include the new term because of changes that have happened since the original lease was granted. The starting point is that the existing lease terms will remain the same, but there are circumstances (particularly in which the lease is defective or out of date) where it may be possible to argue for new clauses to be included.

If you are proceeding outside of the statue then the landlord can ask for whatever terms he would like in the new lease as there is no statutory control over the terms and unless both parties sign up to the process voluntarily the lease will not be extended.

How do I know what premium the tenant should be paying me to extend the lease?

If a Section 42 Notice has been served, this notice will state an offer figure. This is very much the starting point in negotiations as to the price to be paid. You should take professional valuation advice on the likely ‘fair’ premium from a qualified surveyor.

You can always use a Lease Extension Calculator to determine whether the offer seems valid, however the best way to know would be to obtain professional advice.

Even if you are involved in an informal discussion that will lead the grant of a new lease, you should ask the tenant to pay your costs in obtaining valuation advice so that a figure can be offered to the tenant and/or put to the tenant in informal negotiations.  As the statutory process requires that your costs are covered under Section 60 of the 1993 Act, it would not be unreasonable to ask the tenant to pay some or all of your legal and valuation costs.

I am a freeholder, involved in a lease extension. Will I need a solicitor?

If you are served with a Section 42 Notice or a Section 13 Notice, you should take legal advice immediately.  If you fail to respond to the Notice of Claim or do not respond in the appropriate way, you are at risk of losing out.

Even if you are happy to deal with the leaseholder ‘informally’, you will need a solicitor to deal with the grant of the new lease to the tenant, or with the conveyancing of the freehold interest if you are disposing of it.  This is not something you can do yourself.

If represented, the tenant is unlikely to want to make a payment to you in person as there can be legal difficulties in completing any lease in such a way were the counter party is not a solicitor.

In an extreme case it might be possible for one party to be represented and to draft a document for signature only by the other but this has a serious disadvantage that the unrepresented party is not able to receive legal advice on the nature or effect of the document and is at risk of losing out.