When thinking about serving a s.42 notice to extend the lease, there are several costs to consider on top of the sum paid to the freeholder. 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.
Alongside costs, you will need to think about the timing of the process, and more information can be found in our guidance note on the lease extension process here
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 foregoing the right to take the flat back at the end of the lease. It is a complex calculation made up of a number of components.
A good start is to use a lease extension calculator such as this one here, but please bear in mind this is best use to give a ball park figure and only works in the case of 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 "a lease extension calculator is a very useful tool to prepare an overall budget for the section 42 process, but given the sums involved in this process, it is always sensible to obtain an independent valuation report from your own experienced leasehold valuer, before you start the process off. The same valuer will then negotiate with the landlords valuers on your behalf to achieve the best deal possible"
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 £2000 plus VAT, depending on the solicitor appointed.
Be wary of generalist solicitors or claims companies that use 'case handlers' rather than a real lawyer, who may offer unrealistically low fees but don't have the experience required to go up against your experienced freeholder, meaning you may end up paying a higher premium or accepting onerous new lease clauses.
Get clear advice on your lease from a solicitor who specialises in nothing else
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! (you can read about how we had those costs disallowed by Tribunal here)
In this case, you can apply to the FTT to have the freeholders reasonable legal costs determined. The application costs £114 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.
How much does it cost to extend a lease?
The answer is:
The premium plus your legal and valuation costs, plus the landlords legal and valuation costs. All of these are moving parts and hence it is difficult to be precise at the outset of the process.
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.
Our clients
Peppercorn Law is based in Sussex, serving communities in Hastings, Eastbourne, Brighton and Worthing, but we also act for clients in London and beyond, based on our remote client onboarding process and electronic signing software.
Thinking of selling in the next few years? Make sure your lease won’t hold you back