How Much Does a Lease Extension Cost?
For leaseholders in Tunbridge Wells and Sevenoaks, extending a lease is a crucial financial decision. Whether you're a homeowner looking to protect your investment or a landlord seeking to maintain property value, understanding the costs involved in a lease extension is essential. This article outlines how the premium is calculated, the factors affecting valuation, and the importance of expert negotiation.
Why Extend Your Lease?
A lease is a diminishing asset, and as the term reduces, the value of the leasehold interest decreases. When a lease drops below 80 years, the cost of extending it increases significantly due to the addition of marriage value—a charge payable to the freeholder to reflect the increase in property value resulting from the lease extension. This is particularly relevant in areas like Tunbridge Wells and Sevenoaks, where property prices are high, and leasehold properties form an essential part of the market. It is estimated that in Kent approximately 9% of residential property is leasehold.
What Determines the Cost of a Lease Extension?
The cost of a lease extension, known as the premium, is calculated based on several factors, including:
Current Unexpired Term – The shorter the remaining lease term, the higher (more expensive) the premium.
Ground Rent – Higher ground rents increase the cost of extension.
Reversionary Value – The freeholder's anticipated future ownership of the property impacts the valuation.
Marriage Value – If the lease is below 80 years, this additional cost applies.
Market Value of the Property – Properties in high-demand areas, such as Tunbridge Wells and Sevenoaks, tend to attract higher premiums.
Discount Rates and Deferment Rates – Technical valuation considerations that influence the final amount.
How is the Premium Calculated?
The valuation methodology is based on statutory principles outlined in the Leasehold Reform, Housing and Urban Development Act 1993. The calculation involves complex financial modelling, making it essential to seek expert valuation advice. This is especially important when it comes to negotiations.
Tom Olden, principal of Olden Property, personally undertakes all lease extension valuations and negotiations. With 20 years of experience as an RICS Registered Valuer, he ensures leaseholders receive an accurate assessment of their extension costs, helping them navigate the negotiation process with freeholders.
Example Costs for Lease Extensions
To illustrate, consider the following approximate figures for lease extensions in different areas:
Sevenoaks: A flat worth £350,000 with 82 years left may require a lower premium, in the region of £10,000.
Tunbridge Wells: A flat worth £350,000 with 78 years remaining may require a premium of around £28,000.
These figures are indicative, and actual costs depend on individual circumstances. A precise valuation from a qualified surveyor is essential.
Negotiating the Premium
Once the valuation is established, negotiations with the freeholder begin. Many freeholders propose an initial figure higher than the statutory premium, making negotiation a key part of the process. An experienced surveyor ensures the leaseholder pays a fair amount by:
Challenging excessive valuations proposed by freeholders.
Providing reasoned counteroffers based on market evidence.
Engaging in tribunal proceedings if necessary.
Tom Olden's extensive negotiation experience ensures leaseholders in Tunbridge Wells and Sevenoaks achieve the best possible outcome.
Statutory vs. Informal Lease Extensions
Leaseholders can extend their lease through a statutory or informal route:
Statutory Lease Extension – Provides a guaranteed 90-year extension with ground rent reduced to zero, but follows a formal process.
Informal Lease Extension – Negotiated directly with the freeholder, often allowing flexibility but with the risk of unfavourable terms.
Statutory lease extensions provide stronger legal protections, and a specialist valuation ensures leaseholders do not overpay.
Impact of Leasehold Reform on Costs
The 2024 Leasehold Reform legislation proposes changes that, once enacted, could alter the way lease extensions are valued. The removal of marriage value is one of the most significant proposed changes, which could reduce costs for leaseholders. However, until the law is fully implemented, existing valuation principles remain in force. Leaseholders should seek professional advice before delaying an extension based on expected legal changes. We will however also advise on the new process for contexr.
The Importance of Professional Representation
Given the complexity of lease extension valuations, engaging a qualified surveyor is crucial. Tom Olden, as an RICS Registered Valuer, provides expert valuations and negotiations to ensure leaseholders in Tunbridge Wells and Sevenoaks secure the best terms. With 20 years of experience in lease extension valuation and negotiation, Olden Property has successfully helped hundreds of leaseholders navigate this process.
Conclusion
Understanding the cost of a lease extension is essential for leaseholders seeking to maintain or enhance their property’s value. Given the financial implications of marriage value and fluctuating market conditions, obtaining a professional valuation and engaging in expert negotiation is the best way to ensure a fair premium. If you are considering extending your lease, seeking specialist advice from Olden Property will help you make an informed decision and achieve the best possible outcome.