How much does a lease extension cost?

The question is simple. Sadly, we can’t say the same of the answer. However, at Bate & Albon we’re here to help. There are lots of variables involved in the cost of a lease extension. We’re going to go through the big ones.

Broadly speaking, the total amount you pay to complete a lease extension will be made up of:

• The price or premium payable for the new lease (paid to the freeholder)
• Your legal costs
• Your valuation costs
• Your landlord’s legal costs
  
• Your landlord’s valuation fee
• A registration fee and related Land Registry fees
• In some cases, an admin fee to a management company
• In rare cases, the cost of a new lease plan

Now, let’s take each of these in turn.

The new lease premium

Usually, this is the largest element of the total costs for a lease extension.

This is the amount paid to the landlord to extend the lease by 90 years and reduce the ground rent to zero. It’s a complicated calculation that requires the input of a specialist valuer. That said, you can get a ballpark figure here. This is also an exercise in negotiation. Each party has its own valuer representing its own interests.

We are commonly asked why there cannot be one surveyor or valuer. The answer is that depending on which side they are on, a valuer will come up with different valuations!

For example, the s.42 notice will be served at a low opening offer amount (advised by your valuer). Within two months, the freeholder will respond with a s.45 counter notice. This will purposefully be served at a higher level to allow for negotiation. You should therefore not be surprised or place too much weight on the counter notice figure (which can often be a source of surprise or worry if looked at out of context).

The price must be calculated based on the detailed rules set out in the Leasehold Reform, Housing and Urban Development Act 1993. Still, there is scope for dispute, principally on the value of the leasehold property, how the ground rent should be capitalised and whether there are tenant improvements to be disregarded.

As a solicitor that handles hundreds of lease extension each year, I am often asked to take a guess at what the premium may be. As you can see from the above, this would be unwise and may cause an unwelcome surprise at a later date. There’s truly no substitute for valuation advice.

Your legal costs

The solicitor handing your case will provide a detailed cost estimate for taking the case from inception to completion, and all the steps and the coordination of parties in between.

If the process is not contested (sadly some freeholders will contest notices to gain a financial advantage) the process must follow a procedure laid out within the leasehold reform legislation.

However, this timeline should be seen as individual moving parts rather than a fixed timeline, and the process could look like either of these two examples or a combination of the two:

Straightforward claim

• Set up file, client on boarding, arrange valuation, prepare and serve notice: 3 weeks
• Receive counter notice: 4 weeks
• Valuers negotiate premium: 4 weeks
• Lawyers negotiate new lease: 2 weeks
• Completion and registration at Land Registry: 2 weeks

      Total time: 15 weeks

Difficult claim

• Set up file, client on boarding, arrange valuation, prepare and serve notice: 4 weeks
• Receive counter notice: 9 weeks
• Valuers negotiate premium: 23 weeks
• FTT application and directions: 12 weeks
• Lawyers negotiate new lease: 8 weeks
• Completion and registration at Land Registry: 4 weeks

      Total time: 60 weeks

Much of which track you will end up on will depend on how responsive and co-operative your landlord and your landlord’s advisors are. From the leaseholder side, this is largely outside of your or your lawyers’ control. That said, experienced enfranchisement lawyers such as those at Bate & Albon Solicitors will be able to take steps to move things forward as much as possible, given our experience and detailed understanding of the applicable legislation and case law.

With this in mind, it will be clear why costs can only be estimated, and we would urge caution if you are offered a fixed fee quote. Frankly, this is unlikely to be given by a lawyer with the relevant experience in this complex area.

Your landlord’s legal costs

These should largely mirror your own costs if the landlord’s solicitors are based in the South East. However, your landlord could appoint London-based solicitors or large firms that charge higher rates. We tend to see landlords’ legal costs of between £1,000 and £1,800 plus VAT and minor disbursements of around £30.

It’s a well-known issue within the sector that landlords’ costs can be too high to be seen as reasonable. However, we ensure our clients do not overpay by having the landlord’s reasonable costs determined by the independent First-tier Tribunal where appropriate.

Your valuation costs

These will be split into your initial valuation cost and the costs of subsequent negotiations. Many valuations can be completed remotely these days, for both speed and keeping costs proportionate.

This is particularly so if the lease has more than 80 years remaining and is within a block of standard sized flats, with a modest ground rent.

This part will cost you somewhere between £500 and £1,000 plus VAT depending on the complexity of the valuation. For example, if the lease contains a ground rent linked to the Retail Price Index or a doubling ground rent, it will be trickier to value. Another example is if the lease has less than 80 years, which would attract marriage value.

Your landlord’s valuation costs

You will be liable to pay the landlord’s reasonable valuation costs. Though note that you are under no obligation to pay your landlord’s negotiation costs.

This acts as an incentive to avoid dragging out negotiations and an experienced enfranchisement solicitor will be able to guide you on whether the costs requested are reasonable in amount and only include the initial valuation rather than negotiations. We would expect this fee to be similar to your own valuation costs of £500-£1000 plus VAT however case law does support that a freeholder is free to appoint a valuer of its choosing, and this can include those that are more expensive.

Related additional fees

If there is a residents’ management company or similar, it is common to be charged a fee of around £100 to £150 for the company to organise the signature of one of the directors on the new lease. Your lawyer will be able to confirm if there is a third-party company that will need to sign the lease extension deed.

If the parties cannot agree the premium or new lease document within six months of the counter notice being received, you will be asked for a Tribunal application fee of £100. This is for a protective application to be made to the First-tier Tribunal. It is very rare for matters to proceed to an in-person hearing, but that would involve a hearing fee of £200 and costs of your advisors attending. This is rare for anything other than prime central London properties or those with very short leases of say less than 50 years.

Anything else?

If your lease was registered without a lease plan or with a lease plan that is since out of date due to changes in the property layout, your landlord may request (and it is likely in your interests) to update the lease plan whilst undertaking this process. You should budget £150 to £200 for a lease plan company to prepare a Land Registry-compliant lease.

In some cases, it can be temping to draw your own plan or adapt an old one. However, this can lead to Land Registry queries and relays in the registration process and can be a false economy. We would always recommend having a proper plan drawn up given the sums spent to get to this stage.

Finally, there will always be a registration fee of around £45 plus a fee for identification checks of between £5 and £15 per registered owner, a priority search fee of £3 and a bank transfer fee (to allow same-day transfer for completion).

When contacting Bate & Albon for a quote, you will receive a detailed costs estimate at the outset, and we are happy to clarify if any of the non-standard cost are likely to apply to your lease extension. This is a highly complex process, but we do everything we can to make it simple for you – so you’re never in the dark about costs or what’s next.