Share of freehold lease extension process

• Agree with the share of freeholders to the extension.
• Instruct a solicitor to draft a new lease. This is an informal lease extension with no prescribed timeframes.
• (If mortgage) Draft Deed of Substituted Security.
• Submit lease to share of freeholders and leaseholder to sign.
• Surrender the old lease and submit the new lease to the Land Registry.

The process is complicated if the share of freeholders aren't in agreement or if one of the co-owners is absent and a vesting order is required.

Why should you extend your share of freehold lease?

You should extend your share of the freehold property lease, particularly if it is short, because:

• Your individual lease becomes more valuable;
• You'll be able to remortgage (you can't on a 'short' lease);
• You make it easier to sell your leasehold if you wish to.

If you have the opportunity to extend your lease now (with other shares of freeholder's consent) you should grab it.

Further down the line, should you be required to extend it (say to remortgage), you might be unable to find all the shares of freeholders to get an agreement or unable to get consent. Either of these will result in an informal extension or a more costly and drawn-out process.

How can you best prepare to extend your share of freehold property lease?

• You must get the agreement of the other share of freeholders to proceed with the lease extension first otherwise, as stated, you might ultimately have to go through a drawn-out statutory procedure with court proceedings, which is likely to cost far more. This is discussed below.
• You should also get confirmation from your other freeholder lease sharer(s) that you're appointing a solicitor to act on behalf of both the freeholder and you as leaseholder (this will save money on legal costs) and that you will be liable for associated costs.
• Finally, you should confirm whether 999 Years is to be the term of the lease extension and whether you will be charged a peppercorn rent.

Do you need to get a RICS freehold valuation to extend?

You don't need to get a RICS freehold valuation for your lease extension but you are advised to get one in the rare event that you are required to pay a premium, such that this premium can be worked out as fairly as possible.

The share of freehold lease extension process

Assuming you have agreement from your other share of freeholders to proceed, you should get an undertaking from your other share of freeholder/s that your solicitor is going to act for you and for the freeholder, thus waiving your right to independence - this saves costs. Your solicitor then proceeds with the sale process and the required conveyancing.

You would only get a RICS lease extension valuation of your freehold before instructing your solicitor if you're expected to pay a premium, but, for reasons explained above, it's highly unlikely that you'd be expected to pay a premium.

You then normally have 2 options regarding the format of the new lease:

Option 1: An entirely new lease is drawn up

This option involves all the terms of all the leases in the entire building being rewritten into an entirely new lease. You only normally need to do this if:

• The current leases are substantially defective in many respects; or
• The format of the lease differs throughout the building - they should ideally be uniform in all key aspects.

Option 2: A deed of surrender and re-grant is created

Effectively this is a ‘short form' of a new lease which refers back to the majority of the terms of the existing lease and only amends the length of the term (normally to 999 years) and reduces the rent (normally to a 'peppercorn', i.e. there is no rent payable).

Additionally, you can choose to incorporate minor amendments to the leases. For example, you might remove any covenanted restriction againstkeeping pets in a leasehold or you might want to add a covenant which enables the freeholder to act against breaches of the underlying leasehold contract.

The majority of leases are extended in this way. Your solicitor draws up the new lease (which is then registered) and completes the required conveyancing.

Our experienced solicitors can guide you through this process highly efficiently.

Lenders and mortgage deeds

If your leasehold has a mortgage and your mortgage lender has consented to a plan to extend your share of the freehold lease, to comply with the Land Registry's requirements as part of your conveyancing you'll have to sign either:

• a deed of substituted security – this substitutes the new lease as security for the mortgage, in place of the original lease; or
• a new mortgage deed – in this case, the lender will have to notify the registry on completion that the original mortgage is discharged.

Do you have to pay stamp duty on a lease extension?

Lease extensions are usually exempt from stamp duty because where the surrender of a lease is given in consideration of a new lease being granted between the same parties, neither the surrender of the old lease nor the grant of the new lease is regarded as chargeable consideration for the purposes of stamp duty.

You don't have to tell HMRC or pay stamp duty when you buy a new or assigned lease of 7 years or more, as long as the purchase price or the premium is less than £40,000 and the annual rent is less than £1,000.

You also don't have to inform HMRC or pay stamp duty when you assign or surrender a residential or non-residential lease (granted for 7 years or more) and the chargeable consideration is less than £40,000.

That said, if you are extending a lease on a property which is not your only property and the agreed premium is £40,000 or over, then the 3% stamp duty surcharge will apply: please call our experts for more information on this topic - 0333 344 3234 (local call charges apply).

How long does the freehold lease extension take?

Assuming you have lender consent (if any lender consent is required to extend leases here) and consent from the other share of freeholders, you should be able to extend your lease in a matter of weeks (perhaps 4 - 6 weeks), although this will depend on individual circumstances.

How much is a share of freehold lease extension likely to cost?

SAM Conveyancing charges £920 Inc VAT for the conveyancing for extending a single leasehold title, as part of a share of freehold itself.

This falls to £720 Inc VAT per extending leasehold title if there is more than one as long as they are all part of the same share of freehold block.

In the rare event that you require a RICS leasehold valuation as well, SAM Conveyancing charges £600 Inc VAT for this service.

Free initial leasehold advice

Arrange a free consultation with one of our experienced conveyancing executives on:

• Lease extension.
• Purchasing the leasehold, freehold or share of freehold.
• Selling a leasehold property with a short lease.
• Extending the lease at the same time as you sell.

Arrange a Free Lease Consultation

We specialise in lease extensions and have RICS valuers for the premium/negotiation and solicitors for the section 42 notice and formal or informal extension. Request a tailored quote for:

• RICS Lease Extension Valuation or L2 Homebuyers Survey.
• Serving of the section 42 notice or section 13 notice on the freeholder.
• Negotiation with the freeholder (with the support of your RICS valuer).
• Completion of the legal work, including deed of variation.
• Application to Tribunal to determine the premium.
• Vesting order for absent landlords.

What happens if your other share of freeholders refuse to allow your lease extension?

You then have to take the 'formal' statutory route to lease extension. You can effectively force the other shareholders to agree to the full premium payment required to grant you a 90-year lease extension with a peppercorn rent.

This is a more expensive process and protracted process for which you are strongly advised to get a RICS freehold valuation and instruct experienced lease extension solicitors. The quicker you can find agreement as a rule in all these matters, the cheaper the outcome will be.

The formal process at its most extreme can involve court proceedings and an application to a tribunal, at which point the freeholder must pay their own legal costs, a further encouragement to settle the matter.

What happens if you can't locate your other share of freeholder/s for your lease extension?

You have to apply to the court for a Vesting Order. You will need to make demonstrable efforts to find the absent share of freeholder and there are legal fees and costs involved as well as time limits to adhere to.

This situation can occur in unexpected ways. There have been many cases where a previous share of freeholder has sold their leasehold interest to someone else but, perhaps inadvertently, has not sold on their share of the freehold.

It remains then that legally they must be consulted if someone wants to extend their lease, but they might not be easily found.

The situation can also occur if one of the share of freeholders gets repossessed: the lender has no right to transfer the share of freehold away from them. People in this position have sometimes been known to be found or appear years later, seeking huge remuneration for the sale of their share of freehold interest.

Appendix 1: Diagram of the formal lease extension process (other share of freeholders don't agree to lease extension)

Appendix 2: Cost of the formal lease extension process (other share of freeholders don't agree to lease extension)