Extending your lease - Section 42 UK

In this video I explain about about how lease extensions work in the England, your entitlements and why extending your lease might benefit you. 📈

If you own a flat or are thinking of buying a flat, you might want to check how long your unexpired term is and deal with it sooner rather than later.

Under the Leasehold Reform Housing and Urban Development Act 1993 (LRHUDA 1993), a leaseholder is entitled to a lease extension after they have owned the property for 2 years. The extension is an additional 90 years added to the current unexpired term of your lease. You also end up with a "peppercorn ground rent" which essentially means zero pounds.

So for example, if you have an unexpired terms of 82 years and you pay ground rent, you'll end up with a new 172 year lease and no ground rent.

Because this is a statutory right, you are essentially forcing the Freeholder to lose his right to get the flat back in the unexpired time, and the right to receive a ground rent over that period (if applicable - some flats don't have any ground rent). The value of this loss needs to be calculated which results in some sort of "premium". This is the compensation due to the Freeholder for extending your lease.

It is important to remember, that if your lease drops to 80 years or below, it gets even more expensive to extend because of marriage value. This is an extra element of value whereby the uplift in the flats value as a result of the lease extension is split 50/50. Calculating marriage value is not simple, and relies on knowledge of precedents set by courts, knowing the market values, and using some mathematical formulae.

As there is lots of variables that go into a lease extension calculation which are all subjective, there is often a justifiable range of figures. These are then negotiated.

The process looks like this (for leaseholders):

1. You instruct a Valuation Surveyor to provide you with a report outlining the figures.
2. Once you have the figures, you need a solicitor to serve a Section 42 notice on the Freeholder.
3. The Freeholder is given a minimum of 2 months (but with a deadline) to come back to you with an answer. They can either accept your proposed figure, or reject it.
4. Normally the Freeholder doesn't accept it, and sends back a counter offer, called a Section 45 notice.
5. This notice will state a new figure, which is likely to be a lot higher than the original notice figure.
6. Once you have received this, you can then instruct the surveyor to negotiate that figure down. The surveyors have 6 months to try and settle the matter before you consider applying the courts to have it settled.

To summarise, as your lease drops, so does the value of your property, so always be diligent and check because things can get costly.

Drop a comment down below if you have any questions about this process, property related questions or topics you would like me to discuss.👇🏻👇🏻👇🏻👇🏻👇🏻

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Music cred: www.bensound.com