Lease extension costs under Leasehold Reform Act 1993

When thinking about serving a s.42 notice, there are several costs to consider on top of the sum paid to the freeholder for the new lease. It is nearly impossible to predict the total cost to within a few hundred pounds but we hope that this guide assists you in planning and ensuring adequate funding is available at the point of completion.

It's important to understand that the total cost of a lease extension is a combination of the following:  

Premium for lease extension

The payment to the freeholder for extending the lease. This is the capital amount paid in lieu of the freeholder giving up the right to future ground rents, and the idea that one day the flat would revert to the freeholder at the end of the lease term.

A good start is to use a lease extension calculator such as this one here, but please bear in mind this is only fully accurate for fixed ground rents, whereas most ground rents increase over time. As a leasehold solicitor with over 10 years experienced in this section, Ricky Coleman of Peppercorn Law states that "the government lease extension calculator is a very useful tool, but it does tend to be skewed towards the leaseholder, and your freeholders valuer is likely to apply the valuation method in a way that inflates the premium, so you may end up paying slightly more than the lease extension calculator states"

Valuation Fees

To determine the premium. Note that the leaseholder will expect to pay around £500-600 plus VAT for their valuation. The freeholders valuation will be around the same amount and forms part of the costs payable to the freeholder.

The leaseholder may have to pay negotiation fees to their valuation surveyor in the period after the s.45 counter notice and before terms are agreed. However the leaseholder is not responsible for the freeholders negotiation fees. The valuation invoice of freeholder should always be checked to ensure they are not passing negotiation costs on.

Legal Fees

For both the leaseholder and the freeholder's solicitors.  The leaseholders legal costs will vary and be anything between £950 to £1800 plus VAT, depending on whether your solicitor charges VAT. Things on the freeholder side can be difficult, as the freeholder is more or less free to engage any law firm they choose, and as they are not paying, this will inevitably be London law firms with high hourly rates.

At Peppercorn Law we have seen freeholders costs of £1400 plus VAT up to £3500 plus VAT. We have even seen a firm in Brighton try to charge £6000 plus VAT for a straightforward lease extension with no marriage value! In this case, you can apply to the FTT to have the freeholders reasonable legal costs determined. The application costs £110 to make, and requires little input from the leaseholder or their solicitor, other than to critique a breakdown of the freeholders costs to set out where these should be trimmed by the Tribunal i.e. excessive correspondence or time charged for basic documents, double charging etc.

Lease plan fees

It may be the case that the layout of the flat has changed since the original lease was granted in the 1970s for example, and in this case the lease extension process is a great time to replace the lease plan rather than enter into a Deed of Variation later down the line. Expect the costs of a competent lease plan company to be at least £150 to visit the flat and prepare a Land Registry compliant lease plan.

Tribunal Costs

If disputes arise, you may need to apply to the First-tier Tribunal. This is most likely if the premium cannot be agreed or if the freeholder wishes to include new clauses within the lease..

If these matters cannot be dealt with by agreement it will be necessary to make a Tribunal application before the lease extension claim is deemed withdrawn by running out of time. Though it is rare for a full First-tier Tribunal Hearing to happen and for the most part this is a method to extend time for reaching agreement.

The most common FTT application includes an application to have the lease extension premium determined, if the valuation surveyors cannot agree on the premium and this is most likely to happen for prime central London properties, flats with very short leases of less than 50 years or those with development value. In addition, if the freeholder introduces onerous new lease clauses, such as new administration fees, high percentage late payment fees or enhanced landlords costs recovery clauses, the leaseholder will need to push back on these and make an FTT application for a determination of the terms to be included in the new lease.

Onerous landlord clauses will almost always be struck out by the FTT, which will only allow a basic deed that replaces the ground rent with a peppercorn and add 90 years to the lease term. Sadly, some freeholders will simply drag things out and make things difficult in the hope that the leaseholder accepts onerous additions to the lease.

What next for the Leasehold Reform Act 1993?

We anticipate amendments to the Act by the newly enacted Leasehold and Freehold Reform Act 2024, including the removal of landlords recoverable costs, amongst other changes. Keep tabs on our lease extension guidance page for updates as and when the changes take place.