Lease extension and buying a freehold

When you own a leasehold property, the longer you have remaining on your lease the better. Having fewer than 80 years remaining on your lease can make the property worth less, and can also make it tricky to sell as mortgage lenders might not approve applications from prospective buyers.

In this situation, you might want to extend your lease, which you'll have a legal right to do if you've lived there for at least two years, or actually buy the freehold. The latter option gives you much more power but also greater responsibilities.

You can find out more about the two forms of ownership in our guide to leasehold vs freehold.

In this guide, we explain the processes of extending a lease and buying the freehold.

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Your lease extension rights

There are two ways to extend a lease. One is to exercise your legal right after you've owned the property for two years, when you'll be able to add 90 years to the existing lease on a flat or 50 years on a house (subject to extra criteria - take legal advice if this applies to you).

The formal process involves getting the property valued and starts with you or your solicitor serving 'Tenant's Notice' on the freeholder.

The alternative is to negotiate informally with the landlord. If you want to extend your lease and have lived there for under two years, this is your only option.

Negotiating a leasehold extension and the price you'll pay for it can be complicated and time-consuming, so we recommend taking professional advice.

Costs of extending a lease

The cost of extending a lease depends on a whole host of factors.

If you've owned a leasehold flat for two years, you'll have the right to add 90 years to your lease at peppercorn rent, which would reduce your ground rent to zero. But you'll have to pay the landlord a premium to extend the lease. You may also have to pay marriage value (see below) if there are fewer than 80 years left on your lease when you come to extend it.

The shorter the lease on a flat is, the more expensive the premium will be. The freeholder also has the right to request a deposit of £250 or 10% of the cost of the proposed new lease, whichever is greater.

If you're extending the lease on a house, you won't have to pay a premium. But your ground rent could go up when your new 50-year lease begins to the 'modern' rent, which represents the value of renting the site.

You'll need to pay your own valuation fee and solicitor's fee, and the 'reasonable' costs of the freeholder, which can include their valuation costs and legal fees too.

Leaseholders sometimes worry that any improvements they have made to the property could make their lease extension more expensive, but any renovations made by a current or previous leaseholder must be disregarded when the cost of the lease extension is calculated.

What to do if you and the freeholder can't agree a price

If you negotiate informally, freeholders could demand over the odds. This could be because they place an unrealistic value on their property, or they suspect a leaseholder won't want to pay for formal valuations and legal costs.

If you're not able to extend your lease by negotiating with the freeholder, you or your solicitor can serve notice on them and compel them to comply. The freeholder would then serve a counter-notice, stating whether your right to extend your lease is accepted.

If an agreement still can't be reached, you can apply to a tribunal (see below) and have the price decided there.

Absent freeholders and extending a lease

By law, you have the right to know your freeholder's name and address. The freeholder or their managing agent can be fined if they fail to respond to a formal request for this information.

If you can't find your freeholder, you can apply to a tribunal for a manager to be appointed, or you can consider buying the freehold yourself (see 'buying your freehold', below).

Remortgaging to cover the cost of a lease extension

Some leaseholders choose to remortgage to fund their lease extension. This can be tricky, as you won't necessarily know straight away how much money you'll need to raise.

The good news is that once you've agreed on the premium and terms of the new lease for a flat, it should be completed within two months, giving you time to arrange your finances. But the freeholder (or yourself) can also serve notice to complete within 21 days. There are also legal deadlines for completing a lease extension on a house.

Buying a freehold

Buying the freehold can give you more control over what you pay out in maintenance charges and protect the value of your property - but buying a share of the freehold in a block of flats is different from buying the freehold of a house.

When you buy the freehold of a house, you'll own the land your property sits on outright.

If you buy your flat's freehold, however, you'll jointly own the land with your fellow freeholders - meaning you'll have a share of the building's freehold.

You can usually extend the lease on your flat to 999 years for free (aside from legal fees), leaving you to manage your own service charges, and potentially increasing the value of your property too.

Buying a share of the freehold if you live in a flat

Whether buying a share of the freehold will cost more than extending your lease depends largely on your building.

For example, if it has a basement or loft space that could be developed (thus adding value to the property), then it could be prohibitively expensive to buy your freehold. Your first port of call is to discuss this with a chartered leasehold valuation surveyor.

It's also worth mentioning that owning a share of the freehold is unlikely to make a significant difference to the value of the property.

If you are selling your flat after buying a share of the freehold, you can add the freehold share in as part of the deal or negotiate separately.

• Find out more: leasehold vs freehold

Collective enfranchisement

You can buy a share of the freehold of your building along with your fellow leaseholders and this is known as 'collective enfranchisement'.

You'll need support, though: to collectively buy the freehold rights, you'll need at least half of the other leaseholders to agree to buy a share.

As with extending your lease, you'll need to have the property valued and should take legal advice.

If you agree to club together to buy the freehold, you'll need to decide who will become the new landlord - this will often be a company set up by the tenants - and serve an initial notice on the freeholder.

Right of first refusal

If you live in a flat and your freeholder decides they want to sell part or all of the freehold, they legally have to offer the leaseholders the right to buy it before selling it to a third party.

If the freeholder offers a right of first refusal, the leaseholders have two months to accept the offer, and more than half of the qualifying tenants would have to accept.

If you reject the right of first refusal, the freeholder can sell to a third party, but not for less than the figure offered to the leaseholders if it's within 12 months of them having made the offer to you.

The right of first refusal doesn't apply if you have a leasehold house.

Commonhold

Some anti-leasehold campaigners are pushing for the government to replace leasehold with a system called commonhold. The Law Commission has also backed this approach.

In a nutshell, commonhold means that every owner in a block of flats owns their own flat and jointly owns the common areas.

The main benefit is that there are no leases to extend, and any shared areas can be managed between the property owners without the need for third-party management companies or external freehold interests.

• Find out more: how commonhold works

Buying the freehold if you live in a house

You can negotiate informally with the freeholder about buying the freehold of your house at anytime. But if you've had the lease for two years or more, you could be legally entitled to buy the freehold of your house.

The process starts when you give the freeholder written notice. The freeholder then has two months to serve a notice in reply, stating whether your claim to buy the freehold is accepted.

They can also require you to pay a deposit equal to three times your annual ground rent, and you'll be responsible for the 'reasonable costs' of the freeholder, such as getting a valuation.

If you and your freeholder can't agree on a price for the freehold, you can apply to a tribunal (see below) to decide the price.

Marriage value

If your lease has fewer than 80 years left when you come to buy the freehold or extend the lease on a flat, you could also face a bill in the form of marriage value.

Marriage value can be very complicated but in simple terms, if the overall market value of the property (both leasehold and freehold) is increased by extending the lease, you could have to pay 50% of the value of this increase to the landlord.

It's best to speak to a specialist valuer about how marriage value might affect you.

How do leasehold tribunals work?

If you can't agree on a price to extend your lease or buy your freehold, you can escalate the matter to a tribunal.

A tribunal is a last resort, but the threat of this and the associated costs can sometimes encourage an out-of-court settlement, particularly if the freeholder is either not responding or is holding out for an unreasonable sum of money.

Before applying to a tribunal, it's best to try and sort matters out amicably. The government-backed Leasehold Advisory Service provides free advice, and civil mediation services are available too.

If a tribunal is the only option, you can apply by downloading a form from the UK government website (or the Residential Property Tribunal Wales website, if you live in Wales) and you might need to pay a fee. You'll then be informed whether the tribunal will consider your case.

What happens next depends on whether you've requested an oral in-person hearing, which you or your lawyer will have to attend, or a paper decision.

If you request a paper decision, you should hear back within six weeks, and if you're unhappy with the final decision you can submit an appeal within 28 days.