How expensive is it to extend a lease?

A lease extension can be a worthwhile investment, by increasing the value of the property and reducing the ground rent to zero. However, extending a lease can come at a cost from SDLT charges, valuation to name just a few. This article will provide in-depth knowledge of the associated costs and how leaseholders can finance the process. 

What is a lease extension?

Lease extensions allow for additional years to be added to the lease; a lease extension lengthens the period of time before the property returns to the landlord’s ownership. 

A formal request for a lease extension, commonly known as a “section 42 notice,” will be made by the leaseholder to the freeholder. The freeholder has two months to respond to the request; if an acknowledgment is not received, the tenant may apply to the Leasehold Valuation Tribunal (LVT). An informal lease extension, typically the only option for non-qualifying leaseholders, requires negotiation with the freeholder. 

Finbri, a bridging loan specialist, comments, “With the introduction of The Leasehold Reforms (Ground rent) Act this year, any new leasehold agreements from July 2022 onwards will have ‘peppercorn’ – or zero ground rent on formal and informal lease extensions. Unfortunately, this is not the case for existing lease extensions; with no certainty on a date for further reforms, existing leaseholders will still have to contend with increasing ground rents that continue to decrease the resale value of the property.”

How much does a lease extension cost? 

The cost of a lease extension will depend on the current lease’s duration, the property’s value, and the negotiation period. The property’s value will significantly impact the price, as more expensive properties will typically be subject to higher lease extension costs and other premiums. In addition to the cost of extending the lease, there are many associated fees, such as legal and administrative charges, freeholders’ valuation, and SDLT surcharges. 

According to the Leasehold Reform, Housing and Urban Development Act 1993, the cost of the lease extension is calculated based on the following: 

  • Freeholders must be compensated for any presumed losses due to the lease extension; this will be included in the overall cost.
  • This includes any ground rent that would have accumulated during the remaining duration of the lease. 
  • The duration of time taken to revert ownership (reversion) back to the freeholder will need to be considered when determining the cost of an extension. 
  • The marriage value is the potential increase in property value that would need to be paid as a premium to the freeholder. Depending on how many years are still left on the original lease at the time the application to extend is completed, the marriage value amount itself can vary greatly. This is typically calculated based on previous experience and is negotiated between valuers from both parties. 
  • Freeholders’ diminution in the value of the interest in the property (this will be the overall value of the freeholders’ interest under the terms of the current lease and the value of their interest following the confirmation of the new lease with an increased term time).

Typically the amount calculated will be based on the duration of the remaining lease, the value of income that will no longer be received, and the total value of the property at the end of the extended lease. This calculation forms the basis of the lease extension premium.

Costs associated with extending a lease?

Costs and fees are determined by the cost of the property, the length of the lease, and the time required for negotiations. There are four main components to the cost:

Lease extension premium: This includes the combination of any aforementioned aspects, and is typically the largest cost of a lease extension, costing upwards of £5,000. The premium is based on the market value of the property, the remaining lease duration, and any payable ground rent. 

Surveyor costs: Employing an RICS Chartered Surveyor is critical as the surveyor will ensure compliance with the relevant regulations set out in the Commonhold and Leasehold Reform Act 2002. Due to the complexity of identifying factors that influence the premium paid by the leaseholder to the freeholder, the surveyor will determine every aspect of the lease extension premium, this may require: visits to the property to determine the value, in-depth research into the local market, and any further calculations. A surveyor is used to provide an estimate that can be used as an initial offer to the freeholder and is supported by research. Depending on the size, location, and other relevant factors this fee will often cost upwards of £600. 

Solicitor’s Fees: A solicitor registered with ALEP (Association of Leasehold Enfranchisement Practitioners) will be needed to draw up the new lease agreement, as well as deal with any further negotiations between the leaseholder and the freeholder. If an agreement cannot be reached between the parties then the leaseholder will need representation at a tribunal. Conveyancing and Land Registry fees in some instances will also form a part of the solicitor’s costs. The average cost of a solicitor is upwards of £600 and varies depending on the complexity of the case and the overall duration.

Freeholder Costs: According to the Leasehold Reform Act, the leaseholder is responsible for covering the freeholder’s “reasonable expenditures” for a lease extension. The freeholder’s expenses will be comparable to the leaseholder, in theory. However, typically the freeholder is unlikely to opt for the cheapest solicitors and surveyors as these costs are at the expense of the leaseholder. 

Stamp duty: Stamp duty is a tax that is payable on the transfer of property, and will be based on the value of the property being transferred. If this is the only property owned, and the premium exceeds £125,000, SDLT will be due at the usual rate of 2% (current rates can be found at However, If the premium exceeds £40,000 and the leaseholder owns or co-owns more than one property, the leaseholder will be subject to an additional 3% SDLT fee.

Despite the usefulness of lease extensions in increasing the overall resale value of a property, there are a number of additional costs associated with this process. A more accurate method of determining the cost is by using a Lease Extension calculator. 

How can a lease extension be funded? 

Cash: The cheapest method of borrowing is always by using savings. If this is a viable option available then personal savings can be used to fund the lease extension process. This can be a good option if the necessary funds are readily available. However, it is essential to remember that there is no guarantee that the freeholder will agree to the proposed changes. 

Bank loan: Borrowing money from a bank or another financial organisation is a possibility. If the leasehold on the property is already owned and the leaseholder has equity in it, they may be able to borrow against this, making it a viable alternative. However, it is quite unlikely that a mortgage may be secured when trying to buy a flat with a short lease (under 80 years), so finding alternative finance would be necessary in order to purchase the property.

Bridging loan: Bridge loans can be used to finance both the lease extension and the acquisition of real estate with short remaining leases. If the money isn’t easily obtainable to either buy the home or renew the lease, this can be a valuable option. Although bridging loans feature higher interest rates and more than typical mortgages, they are only meant to be used as a temporary measure to cover a financial gap until the leaseholder can refinance the loan through a traditional mortgage or through the sale of the property. When the risk profile of the amount borrowed is higher than high street mortgage institutions are willing to take on, bridging loans are frequently utilised for this purpose. 

Final thoughts

With the Leasehold Reforms (Ground rent) Act introduced earlier this year, offering ‘peppercorn’ rates on new leases has been welcomed by leaseholders, as they offer a much simpler and cheaper process for extending a lease. However, despite this monumental step towards the simplification of the extension process of new leases, this doesn’t aid those looking to extend an existing lease. 

The government has suggested that further reforms will change the premium, which is typically calculated as the premium a leaseholder pays to a freeholder, and will soon be determined by a legislative formula. The government has inferred that its plan is to reduce the average price of the extension for leaseholders, but no further details on how the premium calculation would be determined have been disclosed. Depending on the level of urgency for the need for a lease extension, postponement could be considered until further reforms have taken place, suspected to be around the time of the general election in 2024. 

However, these further reforms are considered speculation, and there may be no changes during the next few years. If you are looking to obtain a lease extension, identify all potential costs, and utilise lease extension calculators. If a lease extension is a correct option for you, consult a professional such as a conveyancing solicitor to advise you on your next step.


About Charles Knox 1393 Articles was established to deliver accurate financial information that can help anyone that wants to take control of their finances achieve financial freedom. My Finances is your go-to place for online news. This site gives you an exceptional variety of news and information that helps you make the right financial decisions. We provide features, guides, access to companies offering professional advice & comparisons for smart money choices.