How Much Does it Cost To Extend a Lease?

Are you wondering what to do about your leasehold property? Do you extend or sell? Do you wait it out or sell it fast?

Don’t worry, you’re certainly not the only leaseholder looking for answers. We’re here to help you make the most of your property and your situation, so let’s dive into a guide to lease extension, including how much it costs, how long it takes and what alternatives you have to hand. 

Table of Contents

• What is a lease extension?

• How much does a lease extension cost?

• How long does a lease extension take?

• How long does it take to sell a leasehold property?

• Will a short lease affect the sale of my property?

• Do I have to extend my lease?

What is a lease extension?

A lease extension is when the leaseholder of a property is granted extra time on the agreement they have with the corresponding freeholder. This means the time during which they own the property is extended, while the freeholder retains ownership of the land. 

Leases typically tend to last decades, but when they start to approach 80 years remaining on the agreement, it can affect the value of the property and potentially make it more difficult to sell.

There are a few good reasons for extending a lease, including: 

• Cost: The amount you pay as the leaseholder tends to rise as the number of years left on the lease falls

• Value: The amount a property is worth can increase on the back of a lease extension

• Saleability: Mortgage lenders like to avoid making repayment agreements on properties that have short leases—extending it could widen the pool of buyers

• Ground rent: An extended lease on a new residential property now means that minimal ground rent can be charged by the freeholder, thanks to the Leasehold Reform (Ground Rent) Act 2022

How much does a lease extension cost?

If you’re looking into extending a lease, you’ll have probably come across some recent changes to legislation in the UK. The Leasehold and Freehold Reform Act 2024 essentially makes it cheaper to extend a lease and means it’s no longer necessary to wait for two years of ownership until you can apply.

One of the main savings here is on the ‘marriage value’ clause, which previously meant that leaseholders were liable to pay freeholders 50% of any increase in the property’s value upon extension of the lease. That’s no longer the case, potentially saving leaseholders thousands in the process.

Read more: What’s changing as a result of the Leasehold and Freehold Reform Act 2024?

When that legislation comes into effect, the cost of a typical lease extension will come down, but will still be dictated by two things: (1) the premium and (2) the fees from professional services. 

1. Lease extension premium: The premium is based on a formula set out in Section 42 of the Leasehold Reform Housing and Urban Development Act 1993—it is the fee the landlord or freeholder is entitled to for agreeing to the extension of the lease and is determined through the negotiations with the leaseholder

2. Fees incurred: The extra costs involved with a lease extension include the likes of conveyancing fees, survey costs, legal fees and the landlord’s survey costs—you’ll roughly be looking at £3,000 for such fees

Don’t forget that, if you’re buying and it’s your main and only residence, you’ll also need to pay stamp duty tax if the lease premium (or the ‘purchase price’) is above £125,000. If it’s a second home you’re extending the lease on, you’ll need to pay second-home stamp duty if the premium exceeds £40,000.

Here’s an example of the total cost you might incur if you’re successful with a request to extend your lease: 

Example cost of lease extension with 80 years remaining

If your property is a flat, you can head to the Leasehold Advisory Service and use the leasehold extension calculator to get “a general estimate of the premium” that you’ll need to pay.

How long does a lease extension take?

There’s no set timeline for a lease extension, but the main influence on proceedings is whether or not you go down the legal route by serving a Section 42 notice to the freeholder. They then have a couple of months to respond with a Section 45 notice before moving on to negotiations.

If everything goes to plan, you could have an agreement on the premium within six months and then only a few more weeks to finalise it all. However, if they are uncooperative, the process can drag on for well over a year—no agreement after six months usually means a tribunal is required.

If you have a good relationship with the freeholder, you may not need to go down the legal route and you could be done within three or four months.

How long does it take to sell a leasehold property?

The whole process os selling is dependent on a number of factors that change from lease to lease, property to property and buyer to buyer. Many people automatically head for the open market, which isn’t always the best option for leaseholds due to natural complications with chains and surveys and the like.

However, if you do go down that route, you might be looking at something like four months as a general guide for your timeline, according to Watkins Solicitors:

On the assumption that everything runs smoothly and there is no chain involved, this is what a typical timeline might look like for the sale of a leasehold property: 

Naturally, every case is different, so this should only be taken as an estimate.

Will a short lease affect the sale of my property?

When it comes to selling your property, you need to consider the state of your lease before courting any buyers. In short, the lower you let the lease get, the lower the value of the property.

With the timeline above in mind, make sure you give yourself enough time to extend the lease if you intend to put it on the open market—many buyers won’t even sniff at properties around the 80-year or lower marks due to the troubles they’ll have with lenders for getting a mortgage. 

Here’s a breakdown of how the number of years left on your lease affects the value of the property:

In reality, you’ll have great difficulty selling on the open market if your lease is low—you’ll probably be fielding questions about lease extensions the whole time if, indeed, you get any serious enquiries.

Read more: Are leasehold properties hard to sell?

Do I have to extend my lease?

Selling on the open market isn’t your only option—if you want a quick sale, you don’t necessarily need to apply for a lease extension. Instead of selling via the traditional method, you can sell to a cash buyer company like The Property Buying Company.

Going down the estate agent route can take many months and many battles with would-be buyers, but selling to a cash buyer removes the need to rely on mortgage lenders to secure the deal. It’s often a very quick and efficient way to sell a property that doesn’t have that many years left on its lease (and also to avoid the cost of lease extension completely).

Over the past 12 months, we’ve agreed to buy 86 leasehold properties across the UK.

At The Property Buying Company, we can make you a free cash offer within hours and perhaps even buy your property within days, depending on how quickly you want to move. You can read more about our cash buyer services here and find out more about people who have sold properties to us before in our customer stories.

You can also check our Trustpilot reviews, including this one from John, who had a leasehold property to sell: