
How Much Will My Lease Extension Cost?
If you have less than 85 years remaining on your flatâs lease, you should consider paying for a lease extension urgently. Leave it too late, and your lease extension could become very expensive, and youâll find it much harder to gain access to funding.
But if you extend your lease too soon, your costs may exceed the increase in the value of your flat.
Even though every case is different, we generally recommend extending your lease when you fall below the 90-year mark. Remember, lease extensions arenât always straightforward, and a lot of complex factors affect the price youâll pay.
You could enter into informal negotiations with your freeholder to avoid certain costs, but keeping everything above board means you wonât run any risks or face any nasty surprises. Thatâs why you should get advice from a local property expert before making any decisions.
At Novello Chartered Surveyors, we have a team of RICS Surveyors that specialise in lease extensions and collective enfranchisement. We can produce accurate valuation reports, liaise with third parties, ensure the process goes smoothly, and make sure you pay a fair price.
Feel free to reach out to us for a no-obligation chat if youâre thinking of extending your lease. Below, we explain the factors that affect the cost and how much you can expect to pay.
Lease extension cost factors at a glance:
- The freeholderâs loss of ground rent income
- The leasehold flatâs reversionary value
- Marriage value
- Solicitors
- Surveyors
- Your freeholderâs reasonable valuation and legal fees
- Land Registry fees
- Stamp Duty
Primary factors that affect the cost of a lease extension
Here are the main factors that affect the cost of a lease extension, excluding professional fees:
- The freeholderâs loss of ground rent income
When you extend your lease through formal negotiations, youâll likely stop paying ground rent, which means your leaseholder will lose a source of income. Consequently, the cost of your lease extension will take into account your landlordâs losses. Youâll essentially have to compensate your freeholder for the loss of their ground rent over the term of your current lease.
When calculating your freeholderâs losses, you need to consider more than just the ground rent you currently pay. In most cases, leases contain provisions that allow your freeholder to increase your ground rent over time. Or, your ground rent may be linked to your flatâs value as a percentage. Youâll need a Surveyor to determine your freeholderâs ground rent losses, which will be added to the total cost of your lease extension.
- The leasehold flatâs reversionary value
When a lease expires, the flat reverts to the freeholder, which they are then free to lease to another tenant. This means that your freeholder has a vested âfuture interestâ in your flat. When you extend your lease â which is typically by 90 years â your freeholder loses the ability to find new tenants, meaning they incur further financial losses. Again, youâll have to compensate your freeholder for these losses (the reversionary value) when you extend your lease.
A Surveyor will assess your flatâs current value with a Long Lease and apply a âdeferment rateâ, which is an annual discount applied to your flatâs capital value with regards to the time remaining on your lease. The deferment rate for flats is generally 5%. or more specific advice and negotiating tips please speak to our property experts.
Your flatâs reversionary value is added to the ground rent compensation figure to calculate the cost of your lease extension.
- Marriage value
Youâll only pay a marriage value if you extend a lease with 80 years or less remaining, so you can skip this section if it doesnât apply to you.
The marriage value refers to how much your flatâs value will increase as a result of extending your lease. The increase in value is compared to your flatâs current value, and your freeholder is entitled to half of the difference.
Remember that flats with short leases can increase in value dramatically following a lease extension. The larger the increase, the more youâll need to pay to your freeholder. Thatâs why you should avoid letting your lease fall below 80 years. If you have 90 years or less remaining, nowâs the time to take action. If you wait too long to extend your lease, the marriage value could be higher than both the ground rent compensation figure and your flatâs reversionary value combined.
Additional lease extension costs
In the previous section, we discussed the primary factors that affect how much youâll pay for a lease extension. But besides the cost of your lease extension, youâll also need to cover professional fees. Entering into informal negotiations to extend your lease is an option, but if you donât want to take risks with your finances and future, youâll likely need to pay for:
- Solicitors
Youâll need a legal expert to negotiate with your freeholder and their legal representatives. Itâs crucial to let a qualified professional go through the paperwork with a fine-toothed comb and make sure everything is above board. If you canât reach an agreement with your freeholder, you may need a solicitor to represent you in a tribunal.
- Surveyors
Obtaining an impartial lease extension valuation from a RICS Chartered Surveyor is crucial. They can make sure you comply with the relevant regulations as set out in the Commonhold and Leasehold Reform Act 2002, but the benefits of valuations extend far beyond that.
A surveyorâs top priority is to make sure you pay a fair price for your lease extension. Theyâll calculate the cost of your extension based on worst- and best-case scenarios. They can also walk you through the process, remove any confusion, liaise with your freeholderâs Surveyor, and work alongside your Solicitor. If necessary, they can also provide support should you need to take your freeholder to a tribunal.
If you want to learn more about how RICS Chartered Surveyors can help you protect your investment, donât hesitate to give us a call.
- Your freeholderâs reasonable valuation and legal fees
Youâll be responsible for covering your freeholderâs valuation and legal fees. And, your freeholder is free to hire any professional they like, meaning you wonât have full control over the costs. However, if you feel your freeholderâs fees are unreasonable, you can apply to a tribunal, but be aware that doing so can cost thousands of pounds. Before you take any action, contact an impartial Surveyor or Solicitor.
- Land Registry fees
Youâll only need to pay Land Registry fees if you intend to register your flat under a new name.
Typical Land Registry fees are as follows:
Flat Value | Land Registry fee |
---|---|
ÂŁ80,001 to ÂŁ100,000 | ÂŁ80 |
ÂŁ100,001 to ÂŁ200,000 | ÂŁ190 |
ÂŁ200,001 to ÂŁ500,000 | ÂŁ270 |
ÂŁ500,001 to ÂŁ1,000,000 | ÂŁ540 |
Stamp Duty
Stamp Duty applies to lease extensions in the same way as a typical property purchase. However, it is only applied to flats where the extension price exceeds ÂŁ125,000 (if the flat is not your primary residence, youâll be subject to a higher rate of Stamp Duty). If you think you may need to pay Stamp Duty, you can get an idea of the costs using this calculator.
Typical Lease Extension Costs
The cost of lease extensions can vary wildly, especially considering the number of variables included in the calculation. The most straightforward way to get an accurate insight into how much youâll pay is to call our Surveyors for an impartial lease extension report.
The length remaining on your lease plays a crucial role in determining your lease extension cost. According to the Leasehold Advisory Service, hereâs what you can expect to pay for a 90-year lease extension on a flat valued at ÂŁ200,000:
Time Remaining on Lease | Extension Cost | Professional Fees | Potential Added Value |
---|---|---|---|
95 years | ÂŁ5,000 | ÂŁ2,500 | ÂŁ5,000 |
85 years | ÂŁ6,000 | ÂŁ2,500 | ÂŁ10,000 |
79 years | ÂŁ8,500 | ÂŁ2,500 | ÂŁ16,000 |
70 years | ÂŁ14,000 | ÂŁ2,500 | ÂŁ26,000 |
60 years | ÂŁ24,000 | ÂŁ2,500 | ÂŁ38,000 |
As you can see, the cost of a lease extension starts to skyrocket when your lease has less than 85 years remaining. But itâs not always worth extending your lease too early. Getting the timing right is key to maximising your return on investment.
Please remember that the figures mentioned above are just guidelines, and costs can vary dramatically. For an accurate lease extension cost estimate, get in touch with our property experts.
Use our free online leasehold extension calculator
At Novello, weâve created a free online lease extension calculator that you can use to get an estimate of the cost of your extension. Itâs a handy tool for initial consideration purposes, but it shouldnât be taken as fact or used as a substitute for a professional valuation.
Our accurate and impartial lease extension valuations are available from just a few hundred pounds. Youâll need one to enter into formal negotiations with your leaseholder. If required, you can also use it as evidence if you need to attend a tribunal.
Our RICS Chartered Surveyors work on a mobile basis, so you donât need to visit any offices or cover transport fees for expert advice. If you want to partner with a reliable and experienced property specialist to get the ball rolling, we hope to hear from you. Give us a call, and weâll discuss your online estimate in more detail.