Residential Leasehold Property : Lease Extension Costs

Lease Extension Cost Calculators

Why A Lease Extension Calculator Is Not Accurate Enough

Using an online leasehold calculator is a popular way of working out how much it will cost to extend a lease - but beware! These calculators can be inaccurate or can fail to provide the full financial picture.

Which is why Coles Miller does not recommend them. They do not take into account various factors that can (and usually do) push up the cost of extending a lease.

A lease extension calculator works on the basis of three figures that you input:

  • number of years remaining on the lease
  • annual ground rent
  • value of your flat (or other leasehold property).

To start, the annual ground rent and the value of your flat can sometimes be hard to ascertain.

And there are lots of variables which the calculators do not consider - not least the other parties’ legal costs.

Our specialist residential leasehold solicitors always recommend that you budget sensibly for the other parties’ costs.

Here are some of the factors that can increase the cost of extending your lease…

If There Is A Head Lease

Some residential leases are structured on the basis of three tiers:

  • the freeholder (the landlord)
  • the head leaseholder (usually a management company)
  • the individual leaseholders (the flat owners).

A head lease can make life easier for the freeholder. They need deal with only one party (the management company) instead of lots of individual leaseholders. They collect one head lease ground rent payment instead of having to chase small ground rent payments from lots of individuals.

Unfortunately it can push up the cost of extending a lease because notice must be served on two parties - the freeholder and the head leaseholder. It also means there are two sets of costs that you must fund instead of one.

This head lease structure dates back hundreds of years and has traditionally been associated with old landed estates but it is also becoming popular with freeholders who own more than one block.

Head leases are common in prime central London (such as Knightsbridge, Belgravia, Mayfair, Chelsea) and also in other parts of the country, including the Bournemouth area.

If There Is A Third Party Lease Structure

This is a similar situation to the head lease structure (with similar issues over costs) but in this case the three tiers look like this:

  • the freeholder (landlord)
  • the individual leaseholders (the flat owners)
  • the residents’ management company, entered to the leases as a ‘third party’.

Again by law you must serve two notices - one on the freeholder, one on the management company - even if it can effectively feel as if you are serving notice on yourself!

And again the fact that there are two other parties, instead of simply a freeholder, can again result in an increase in costs.

Who You Are Dealing With

Serving notice to extend your lease means committing to pay the other parties’ costs: sometimes they know this and may try to take advantage.

Your freeholder’s lawyer may try to force up the costs.

Some freeholders have a reputation for being difficult or expensive to deal with. This can dissuade leaseholders from trying to buy the freehold or extend their lease.

These landlords and firms may also take the opportunity to sneak clauses into the small print of your extended lease: such as linking the ground rent to inflation or introducing regular rent reviews.

This is another reason why you need solicitors with specialist expertise in residential leasehold property law to fight your corner.

We know who the difficult freeholders and law firms are and we know how to deal with them.

Disputing The Other Side’s Costs

Worried that the other side may be demanding unreasonable costs? You may apply to the First-tier Tribunal (Property Chamber) (FTT) - formerly the Leasehold Valuation Tribunal (LVT) - for costs to be assessed/determined.

But going to the FTT usually means incurring further costs. And any judgment made there must be enforced by another court (at further cost) so it is important to exercise judgment and get expert legal advice before proceeding.

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