Lease Extension Valuation
- A leasehold extension valuation assesses the current market value of the existing lease as part of the process to extend the lease and is a 'current market valuation' provided by a lease extension valuation surveyor.
- You can extend informally (up to a maximum of 999 years) or formally for an additional 90 years on top of the current lease term. The valuation is calculated using the formula in the Leasehold Reform Act 1993.
- Top Tip: Find a lease extension valuer who only works for leaseholders and negotiates on a fixed fee.
- You can negotiate the price you agree for the premium, with your RICS valuer's help - choose a good one!
The Leasehold and Freehold Reform Act 2024 was passed on the 24th May 2024, but is not yet in effect and the date for this is not yet clear. We will update our content as and when the finalised legislation is published. Read more - Expected changes
Do I need a statutory lease extension valuation?
Yes. The extension valuation calculates the amount you’ll need to pay your freeholder to add a number of years to your current lease term. A lease extension valuer plays a crucial role in advising on these premiums, ensuring you find the best possible terms for your lease extension.
In most circumstances, this will be under the formal statutory lease extension where you add 90 years onto your current lease term.
There are times when you'll do a lease extension informally for a varying number of years and want to double-check the lease extension premium being asked of you by the freeholder to extend.
In our article below we examine how the lease extension valuer calculates your premium to pay to your freeholder for any number of years; either formally or informally.
Can you use an online lease extension calculator?
Online lease extension tools should only ever be used to estimate what you could be liable to pay for your lease extension premium, however, you should never use this for any formal offers to your freeholder.
Dangers of using an online extension calculator, instead of a RICS valuation
Inaccuracies
Online calculators are not accurate as there are variables only a qualified RICS lease extension surveyor can provide such as the Reversionary Rate, current market value (with and without an extended lease), Ground Rent increases and the Relativity Applied.
Errors within an offer to extend with your freehold can delay the process and also leave future negotiations scarred by the freeholder feeling your expectations are too low compared to the actual lease premium paid
Additional Costs
If you provide an online calculation, your freeholder will look to get their own current market valuation from their RICS surveyor for whom you will need to cover the costs.
If you present your leasehold extension valuation from a RICS surveyor of your choice, you may find your freeholder will choose to not get their own as you have used a qualified professional to confirm the premium you should pay.
We have leasehold specialist RICS surveyors who provide current market valuations for lease extensions. Our turnaround is 5 working days to get the report and we have competitive lease extension costs.
Not able to use at First-tier Tribunal (property chamber)
If you can't agree on a premium to pay for the lease then you'll need to go to the First-tier Tribunal and they will not accept an online lease extension calculation as evidence of the premium to pay.
Stuck in negotiations with your freeholder? Learn how to successfully negotiate with our guide.
When do I order my valuation?
Don't apply for a lease extension without at least getting some early advice from a valuer who is familiar with the local housing market.
Under the Leasehold Reform, Housing and Urban Development Act 1993, an owner of a leasehold flat is entitled to a 90-year extension at a reasonable market value price.
With that, it's best to order a valuation when your lease drops below 90 years. However, you will need to have been registered as an owner of the property for at least two years. Currently, the Leasehold and Freehold Reform Bill is being looked at in the House of Lords, which aims to eliminate the two-year requirement for leasehold extensions.
Keep in mind, though, that if the lease falls below 80 years, under the current Leasehold Reform Act, the cost of the extension will be a lot more expensive since the lease is considered a depreciating asset.
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.
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.
How is a lease extension value calculated?
Current value of interest
This capital value is the valuation of the leasehold property in its current condition with a long lease, not the current value with a short lease (less than 89 years).
Existing Leasehold Value
This is the valuation of the existing leasehold in its current condition with its current lease length; often considerably lower than the value of the unencumbered interest as the property is worth less the shorter the lease.
Ground rent including increases
The ground rent payable within your lease rarely remains the same during the full lease term so an RICS surveyor will need to see the lease to work out the 'Existing Freehold Valuation' part of the valuation.
How many years you wish to extend the lease by
Under the formal route, this will be fixed at 90 years on top of your current lease term. However, informally it can be for anything from 1 to 999 years.
Term Rate, Reversionary Rate and Relativity
These rates are applied by your surveyor to calculate the Existing Freehold Valuation.
How to calculate your lease extension premium
The lease extension valuation has two elements to it; Existing Freehold Valuation and the Marriage Value.
You'll see as we move on that the marriage value rate increases the lower your unexpired lease term goes which is why it is important to extend your lease before your lease drops below 80 years.
Existing Freehold Valuation
This first stage of the valuation looks at:
- Term The Term is calculated using the years purchased showing the depreciation of the ground rent using the Term Rate (this is selected by the surveyor); added to
- Reversion The Value of Unencumbered Interest (current purchaser price) with a Reversionary Rate applied over the unexpired term of the lease using the 'Present Value'.
The Term and the Reversion are added together to give the Existing Freehold Valuation total. This will need to be added to the second part of the calculation; the marriage value.
Marriage Value
The marriage value is calculated by deducting the Existing Leasehold Value (current property value with a shorter lease) and the Existing Freehold Value. This sub-total then has the marriage value percentage applied to provide the marriage value.
Do you always have to pay for your freeholder's valuation?
Yes you do, however, some freeholders might accept your valuation and waive requiring you to pay their RICS lease extension surveyor to provide comparisons as long as you supply an RICS valuation. This way, you might save on the freeholder's valuation equating to £600 to £1,500.
You can negotiate with the freeholder which is why you always need a qualified RICS surveyor who is competent to provide lease extension valuations to provide their opinion on the premium.
Suppose this differs from the freeholder's opinion or survey. In that case, your surveyor can discuss the reason for the difference with the freeholder's surveyors (normally chargeable at an hourly rate so speak with your surveyor to find out their hourly rate).
What happens next in the lease extension process?
There are eligibility criteria that the leaseholder needs to meet; something the seller has and the buyer doesn't. This means that if you are going to extend the lease on the property you are buying, you will need to get the seller to do it for you.
You'll need to agree on the route to take, formal or informal, and who is going to pay for the lease extension costs and the premium.
The buyer can buy a leasehold valuation (also known as a leasehold enfranchisement valuation) to confirm the cost of what the valuation could be.
Get a RICS Lease Extension Valuation Quote
Lease extension survey services, provided by professional lease extension surveyors, are essential for homeowners looking to extend their leases.
For a lease extension, you need a current market valuation. Our experienced RICS Surveyors are local to your property and are skilled lease extension surveyors who provide accurate leasehold valuations and negotiate with freeholders to ensure you can confidently navigate the lease extension process.
With availability within days of booking and competitive prices, you can see why we get an Excellent rating on Trustpilot
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Caragh is an excellent writer and copy editor of books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey, property law and mortgage-related articles.
