Residential Lease Extensions – What Freeholders Need to Know

When a person buys the leasehold to a property, they are buying a diminishing asset. The less time there is to run on the lease, the less the property is worth on the open market. Well-informed leaseholders will, therefore, want to extend the lease to protect their investment.

The leaseholder will normally have the legal right to extend the lease once they have owned the property for two years. They can add 90 years to the existing unexpired period. Additionally, the ground rent will be reduced to a ‘peppercorn.’ As a freeholder you have no obligation to tell leaseholders that they have this right.

There is a set process for your leaseholder to serve notice that they wish to extend the lease. Some strict timing constraints also apply. As a freeholder, it helps to be well-informed and well-advised to protect your financial position.

The Process

  1. The first stage is for the leaseholder to issue a ‘Section 42’ notice that they intend to exercise their rights.
  2. If the leaseholder has engaged a surveyor (which they should), the notice will include their estimate of the premium that should be payable for the lease extension.
  3. In all probability, the surveyor will have provided a range of estimates for the premium and the leaseholder’s representative will use the lower figure as a starting offer.
  4. When the notice is served you can request that the statutory deposit is paid within 14 days. This will be either 10% of the premium quoted in the notice or £250, whichever is greater.
  5. It is advisable to arrange your own survey so that you have your own estimate for a reasonable premium value.
  6. Two months after the notice was served you can serve a counter notice containing the terms under which you will accept the extension. You can also make an informal offer, if you wish, which can sometimes speed up the process.
  7. There will normally be a two-month negotiating period after the counter notice is served.
  8. If both parties reach agreement you agree a completion date and the land registry details are updated.


If, after the two-month negotiating period, either party is unhappy with progress they can apply to a tribunal who will set the premium value. Normally it will be the leaseholder that applies. They cannot apply to the tribunal before the two-month negotiation period has expired and must apply within six months of the counter notice. Otherwise, the tenant’s original notice will be deemed to have been withdrawn.

Marriage Values

If there is less than 80 years left on the lease, the leaseholder stands to benefit significantly from the extension. The law requires that the benefit (marriage value) is shared equally between the tenant and the landlord. The calculations can become quite complex and professional advice for the tenancy agreement is highly recommended.

Again, freeholders have no obligation to remind leaseholders that their unexpired lease period is approaching 80 years.

Securing the Best Outcome for Lease Extensions

As you can see from the above, there are strict processes and timelines that have to be observed. Finding a firm who is experienced in leasehold property transactions to guide you through the process is a good investment and can save you a lot of unnecessary hassle.

Our experienced Property Team has encountered just about every type of complication there could be with a house purchase. There’s probably nothing that would surprise us. And our mission is to make certain there’s nothing to surprise you either. Contact us today on 01934 623 501 or click here to see how we can help.

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