Extending your lease: a guide for residential leaseholders
The number of years remaining on your lease is one of the most consequential figures associated with your property. It affects how easy it is to sell, whether a mortgage lender will lend against it, and, once it falls below a critical threshold, how much it will cost you to extend.
Most leaseholders do not think about this until they need to. That moment usually arrives at the worst possible time: when they are trying to sell, remortgage, or deal with an estate. This article explains what residential leaseholders need to know about extending a lease, and why acting early almost always works in your favour.
Why your lease length matters
The 80-year threshold and marriage value
The 80-year mark has historically been the critical milestone in leasehold ownership. Under the traditional valuation framework, leases below 80 years attracted what is known as marriage value - additional value created by the extension itself, a portion of which became payable to the freeholder as part of the premium. The shorter the lease, the greater the cost.
The Leasehold and Freehold Reform Act 2024 is abolishing marriage value as part of a new approach to calculating extension premiums, which will reduce the cost of extending shorter leases. The relevant provisions are being phased in, so the exact impact on your position will depend on timing and specialist advice. What remains true is that the earlier you act, the more straightforward the process is likely to be.
The impact on selling and remortgaging
Most mortgage lenders will not lend on properties with fewer than 70 years remaining, and many apply higher thresholds. A short lease can make a property effectively unmortgageable, dramatically reducing the pool of potential buyers and bringing a sale to a standstill.
Even a lease of 85 or 90 years can cause friction. Buyers' solicitors routinely flag anything approaching the 80-year mark and may advise a price reduction or require the seller to extend the lease before exchange.
The Leasehold and Freehold Reform Act 2024
The 2024 Act is the most significant reform to leasehold law in decades. Key changes relevant to leaseholders considering an extension include:
- Removal of the two-year qualifying period: already in force. Leaseholders can now exercise the right to extend immediately upon purchase, without waiting two years.
- Abolition of marriage value: being phased in as part of a new valuation method. Once in force, this removes a significant cost for leaseholders with shorter leases.
- 990-year extensions: the standard term granted on a statutory extension increases to 990 years, up from 90 years under the previous regime.
- New right to reduce ground rent: separately from the extension process, leaseholders now have a right to vary their lease to replace ground rent with a peppercorn.
- Collective enfranchisement: the non-residential limit for groups of leaseholders buying their freehold collectively increases from 25% to 50% of the building's non-residential floor area, bringing more mixed-use buildings within reach.
The commencement of different provisions varies. Specialist advice on what currently applies to your situation is important before taking any formal steps.
How the statutory lease extension process works
Are you eligible?
The statutory right to extend applies to most flats held on long leases originally granted for more than 21 years. Following the 2024 Act, the previous requirement to have owned the property for two years before making a claim has been removed - leaseholders can now exercise the right immediately upon purchase.
If you are buying a property with a short lease, there is no longer a need to factor in a waiting period. If you are unsure whether your lease qualifies, a solicitor specialising in leasehold enfranchisement can advise.
Serving the Section 42 notice
The formal process begins with the service of a Section 42 notice on your freeholder, setting out your intention to extend and your proposed premium. This triggers a strict timetable: the freeholder has two months to respond with a counter-notice.
Once served, you are committed to the process. A solicitor and specialist surveyor should be in place before the notice goes out; errors in the notice itself can cause significant and costly complications.
Negotiating the premium
The premium is calculated by reference to a statutory formula taking into account the remaining lease term, the current market value of the property, and ground rent provisions. Under the new valuation method introduced by the 2024 Act, marriage value is no longer included in the calculation. A change that benefits leaseholders, particularly those with shorter leases, once the relevant provisions are in force.
In practice, the parties' surveyors negotiate directly, and most cases settle without the need for a tribunal. You are also responsible for the freeholder's reasonable legal and valuation costs, which tends to focus both parties on reaching agreement.
What leaseholders should do
Whether your lease has 95 years remaining or 52, the same principle applies: do not wait. The longer you leave it, the more expensive the extension is likely to be, and the more disruption a short lease can cause at the point of sale or remortgage.
Practical steps to take now:
- Check how many years are left on your lease and review the ground rent provisions.
- If you are approaching 80 years, seek specialist advice as a matter of priority.
- Review whether your ground rent could be varied to a peppercorn under the new standalone right introduced by the 2024 Act.
- Instruct a solicitor and surveyor experienced in leasehold enfranchisement before taking any formal steps.
The statutory process exists to protect leaseholders, but it works best when approached with proper advice from the outset.
For further information and trusted legal advice regarding lease extensions and leasehold enfranchisement, get in touch with us at Carlsons Solicitors.