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.👇🏻👇🏻👇🏻👇🏻👇🏻
Follow me on Instagram where i put out some small nuggets of knowledge aswell:
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Music cred: www.bensound.com

[@PawelMisiura]

Leases always seemed so complicated to me, this cleared a lot of the confusion up

[@RWProperty]

Lease are very complicated in the UK, maybe sometimes more complicated than it needs to be, but I'm glad this helped clear up some confusion! If you have any other queries let me know

[@shashank.kapoor123]

To the point info, easy to understand. Thanks very helpful.

[@TW-mp8zx]

Im not sure if RW PROPERTY is still active but this sequence may be obsolete now and or may need an updated video.

[@sonamfitness]

Great video. Any advice on registering with the Land Registry regarding the forms? Thanks.

[@African.Diaspora.InLondonUK]

from london brixton. uk from blk trainee lawyer, dear people donot let your lease drop to 80 years. in real world people r not vilgent about lease. most get stung with a big bill. do not buy leasehold.

[@RWProperty]

Thanks Jessica, I fully agree, but leasehold isn't all bad. As long as you're aware of the costs and factor them into your budget, it can be a good stepping stone for the property ladder 😃 that's why professional advice from surveyors and solicitors is always recommended!

[@African.Diaspora.InLondonUK]

@@RWProperty from London Brixton UK. Most solicitors give poor advice to buyers during the conveyancing process. We deal with so many cases, of buyers purchasing a property with lease under 80 years. And now have to pay £50k plus for lease extension. Many leaseholders cannot afford it, are forced to sell. Keep your eye on the lease.To avoid this pitfall. Until government reform kick in, avoid buying leasehold property.

[@KMartha22]

Thanks for video. Can I extend a lease on which I still have 990 years left? I would like to do that to reduce the ground rent as the property is currently not mortgageable.

[@RWProperty]

Hi K Martha, Yes absolutely, it's usually very uncommon for people to extend where they have such long leases, but in your situation it would make perfect sense. By extending your lease via the statutory route, you would essentially extinguish the ground rent. Your premium would be a capital lump sum payment of that stream of Income + of course the usual costs involved in extend your lease such as legals and valuation fees. I would definitely speak to a Valuation Surveyor to get some more advice on this. Best of Luck!

[@KMartha22]

@@RWProperty thanks for your reply. I will wait to see if the gov does something to regulate lease extension costs. Otherwise the premium might be more than the flat if they decide they want to the ground rent for next 100 years

[@mmartin4978]

good clear explination thanks, would you know a rough cost for this process in fees

[@RWProperty]

Hey M Martin, thank you for the comment 🙏🏻 very much appreciate it! So I'll try run through a rough cost of fees for you, but I can't say they'll be reflective of what the actual costs may be because it all depends on which solicitors/ surveyors you use and who the landlord will use, but this can be a rough guide. Firstly, you need to instruct a surveyor to undertake a valuation for you so you know what the range of figures for extend the lease would be. I'd say this is usually between £500 - £750 + VAT. Then you'll need a solicitor to serve the section 42 notice. This is maybe around £500-£600 + VAT. When the notice is served, the process is officially instigated, and you become liable for the freeholders surveyors fees and solicitors reasonable fees. I would say this is somewhere around £2000 + VAT (this includes the freeholders valuation fee as well). Both sides then pay their own surveyors negotiation fees. Depending on the lease length and the complexity of the case, these can vary a lot. For general guidance I'll say 3 hours of negotiations may be needed if the lease is below 80 years. This can be around £160+ VAT per hour, so £480 + VAT. So all in all, you'd need to account for a few thousand pounds extra in professional fees (say £4000 - £5000) + the actual lease extension premium. This is also assuming you don't need to go to tribunal. Tribunal is rarely needed, but the fees can get really expensive if it does end up greeting there because the surveyor will then need to submit a court report, and potentially attend as your representative on the day of the hearing. I can't really give a rough cost of this because it varies a lot, but probably around £5000 +VAT just for that. Hope that clarifies the fees, and gives you some idea of what the costs could be. All the best! 😊

[@mmartin4978]

@@RWProperty thanks for your answers 👍

[@AAA19999]

If you buy a flat with section 42 served do you have to pay marrriage value if the lease is below 80 years (i.e 50% of the capital uplift) ?

[@RWProperty]

Hey AAA, technically yes. When extending a lease that's 80 years or below, marriage value will always be applicable. As the buyer, you'll need the seller to serve the section 42 notice and then the right of that notice will be assigned to you as the incoming buyer. You'll then take over the process. Normally when buying a flat with a short lease, and that includes anything below 82" years, it's always best to get professional advice on the costs and risks because you don't want to buy the flat and then get hit with a lease extension bill larger than you expected. Hope that helps!

[@zaink7037]

Ive had a offer accepted on a flat local to me in London. Its got a 66 year lease so needs extension. Im thinking if my mortgage goes through without the lease extension needed i might skip the section 42 and save up for 2 years then pay that off. Will get hopefully a decent imcrease in equity and decide either to take that money out to regain the money i spent on the extension or use it for my next property purchase. I plan to keep this flat long term as hope the value will increase by a nice amount having been located in London and possibly live in it later in life if marriage ever comes in 😅

[@jimbojimbo6873]

Don’t underestimate how expensive it could be

[@zaink7037]

@@jimbojimbo6873 yeah sadly that fell through. The mortgage lender said its too risky for them and that if it did get repossessed with the low lease they don't think they'll get that money back through auction

[@kaihav2405]

I want to buy a property with a brand new 125yr lease on completion. I plan to stay there for 5-8 years time, leaving 117 years worst way on the remaining lease. Will I have any issues selling with this remaining term? And will it negatively effect the value i.e. prevent the property from appreciating in that time period. Thanks!

[@RWProperty]

Hey Zachary! Thanks for the good question. In my experience a property with a 117 year lease will not struggle to sell in the market. Currently, anything with over 100 years is considered 'long enough' so you should be OK. The flat wouldn't depreciate as a result of a lease dropping to 117 years because the reversionary value actually plateaus after about 100 years, so it doesn't matter if you have 120, 250 or 999 years, mathematically speaking the depreciation is negligible. I would add to this, a side point, which concerns ground rent. Check what your ground rent provisions are, because theres something called 'onerous ground rents' which can impact a sale. Essentially, if a annual ground rent is around 0.2% + of the value of the flat, its considered onerous, especially if its reviewed every 10 years, or it doubles. Your solicitor should advise you on that though! Good luck with your purchase, hope it all goes well

[@kaihav2405]

@@RWProperty thank you so much for taking the time, all the best.

[@rohitnaib]

Does you ever experienced the property where owner said you can't extend the lease?

[@RWProperty]

Hey Rohitnaib, it depends.. If its informally done then yes, however if the property qualifies for a lease extension and the leaseholder meets the qualifying criteria then the landlord cannot refuse the extension by law.

[@noway4435]

@@RWProperty hi! Just wanted to ask if you knew of any possible loopholes they could jump through to refuse? (In an official/formal extension application)

[@KMartha22]

@@noway4435 I dont think there are any loopholes.

[@CP-fe6jr]

which the guy would speak up, I can barely understand him