What is the Cost of Renewing a Leasehold?
Estimated reading time 8 minutes
Renewing a leasehold is essential if you want to get the most money for your home when you come to sell it. A short lease isn’t appealing to lenders or buyers so even though it’s going to cost, it’s likely to be of benefit.
The cost to renew a leasehold can vary greatly. It all depends on how long is left on the lease, the length of renewal, the ground rent costs and the value of the property itself. It is not uncommon to see the cost of renewing a lease easily reach tens of thousands of pounds.
In this blog, we’ll take a look at the cost of renewing a leasehold so you can ensure it is still possible to sell your house fast and not reduce the pool of potential buyers.
What is a leasehold?
In property, you’ll often hear leasehold and freehold. A leasehold property is one where you may own the property but not the land it sits upon. Flats, for example, are almost always leasehold. Freehold on the other hand is where both the land and the property are owned by the same person or company indefinitely.
With leasehold property, ground rent and service charges often apply and the inhabitants will be bound by the terms of a lease agreement.
How long does a leasehold last?
Leases can have vastly different lengths. In many cases, you’ll see them set at 125 years, but it is not uncommon to see terms range from 99 to 999 years. Once the lease ends, the property reverts to the freeholder, but it never normally gets this far. You should opt to renew it sooner rather than later. Once a lease has 80 years remaining on it, costs can soon rise and once the lease goes under 70 years, costs can jump exponentially. However, an extension can be started before 80 years are left, or well after. It will just cost a significantly different amount to renew a lease with less time left on it.
How soon should a leasehold be renewed?
It is widely accepted that renewing a leasehold should be considered before the current term drops below 80 years. Once you hit 80 years or less, costs rise quite fast and should it slide to 70 years or less, a mortgage can be extremely hard to come by for a buyer. This puts you in the tricky situation of having a property you want to sell but having nobody able to buy it unless you speak to a cash house buyer perhaps.
As a result, the best way to maximise your sales potential is to ensure the lease is renewed at the earliest opportunity.
How much will the cost of renewing a leasehold be?
As we mentioned in the intro, be prepared for it to cost a lot. You are, in effect, stopping the freeholder from regaining possession so they’ll need to be compensated. How much you pay will all depend on the circumstances we referred to earlier. In case you missed them they included:
- Length of time remaining on the current lease
- The value of the property
- The ground rent
- Any special provisions within the lease agreement
The costs of renewing a leasehold are made up of two main parts. The premium (compensation) due to the freeholder and the fees and costs for the process to run its course. It is worth noting that any legal costs on the freeholder’s side will normally be covered by you alongside your own legal expenses.
In addition, you may also find that a “marriage value” is due. This only applies if you leave the leasehold renewal extension to when less than 80 years remain on the lease. This marriage value means that you will need to pay the freeholder 50% of the value the property gains as a result of the lease extension. For example, should your property see a £30,000 gain in value due to the lease being extended, £15,000 will have to go to the freeholder.
All in all, you could be looking at a total cost to renew the leasehold of £10,000-£20,000 and if the lease is left too short, it could be even higher!
Costs for a leasehold renewal
As we’ve touched upon, it isn’t just the lease renewal that will cost, you’ll also have to look at legal fees, valuation fees and more before a leasehold renewal can be completed.
As a rough guide, you can expect the following to make up your total lease extension costs:
- Valuation fees: You’ll need a surveyor’s valuation to proceed with a lease renewal, this could cost up to £1,000. Double it though, as you’ll be covering the cost for the freeholder too. TOTAL- £2,000
- Solicitor fees: There is a tremendous amount of legal work to cover with a lease extension. Remember, you’ll be expected to cover freeholder solicitor costs too. IN TOTAL- £2,000
- Land Registry fees: As the lease is being extended, the Land Registry will need to be informed, these cost too. Expect a TOTAL OF £20-£40.
- Lease extension premium: The big part of the bill will largely vary on the length of time left on the lease, but you’ll see it rise fast the less time there is left on the lease. TOTAL £5,000-£20,000
Please note, these costs are approximate and could vary greatly depending on a variety of factors.
How long should a lease be extended for?
You can extend the lease of a property for varying lengths of time, but the common consensus is that you should opt for the maximum possible extension. This way there is more long-term security on the property and a maximization of the property’s value potential. For flats, the maximum lease extension is typically 90 years whereas with a house it is 50. Remember, this will be added to the remaining lease length when you extend it.
How long does renewing a leasehold take?
It isn’t a fast process, but it can be sped up if you can reach an informal agreement with the freeholder before following through with the leasehold renewal. It may be worth remembering that whilst agreeing informally, there is no obligation for the freeholder to commit to those terms. They could even add extra to premium making the whole process even more expensive.
As a leaseholder, you are entitled to a formal lease extension once you have lived in the property for two years or more. A formal lease extension follows very specific guidelines, you’ll issue a Section 42 notice to the freeholder (or your solicitor will), they must respond within two months. After this, negotiations take place, which should take up to two months too. Should nothing be agreed in these negotiations, a specialist tribunal may be requested. This will then see a new lease drawn up with it enacted within a further two months.
Overall, with valuations, surveys, negotiations, an agreement and then a submission to the Land Registry, the entire process can take up to twelve months to complete.
How can I make renewing a leasehold cheaper?
If you’ve already been put off by the prices, don’t worry. It’s understandable. However, you can soon knock a few £’s off by putting a plan in place.
- Start early: Keep an eye on the length of your lease and ensure any renewal is actioned before it reaches 80 years remaining. This will avoid the “marriage value” and help you save considerable sums.
- Hire the appropriate experts: You may want to cut corners to save money due to the expense you are likely to incur but that wouldn’t be wise. Hire solicitors and surveyors who are experienced in renewing leaseholds. This will benefit you throughout the process.
- Don’t commit to an informal leasehold renewal: It may have sounded good when you began negotiations, but you could find that whilst the freeholder isn’t asking for vast sums for the renewal, they are upping the ground rent!
Renewing the leasehold of a property can help you benefit from its true value when you come to sell but it can be a costly exercise to execute. Should you be wanting to sell but are concerned over the length of the lease, speak to Bettermove. We are property buying specialists who can facilitate the rapid sale of your home. Whether we purchase it directly or present it to a team of dedicated cash house buyers, your home is guaranteed to sell. In fact, it can sell to a timeframe that suits your exact needs. Perhaps best of all, we do it for free. With none of the leasehold charges to worry about and none of the typical estate agent costs to concern you, you can sell your house for free, ensuring you take the full cash amount we offer. Why not contact us today to start the sales process?
