Negotiating a fair premium for your lease extension

Linz Darlington | June 2020

Negotiating your lease extension starts with the service of your notice, which must contain a ‘reasonable’ offer for your lease extension premium.

The freeholder has two months to respond with their counter notice, and their offer doesn’t have to be reasonable. Many use a really high offer as a shock tactic.

From the date of your freeholder’s counter notice, you have six months to negotiate – although there are a number of tactics you can use to get a fair price more quickly. These are listed below.

Tactic 1: Choose a proactive negotiator and one who cares!

Negotiating a fair price for a lease extension can be an involved task – usually it needs a lot of back-and-forth on the phone and via email to make progress.

The freeholder’s valuer has no real incentive to reach an agreement, so we often find it is us chasing them down to get an updated offer.

Find a negotiator who has a genuine interest in getting you, the leaseholder, a fair deal. Otherwise you are likely to find they recommend that you accept a premium just so they can get your case off their desk.

Tactic 2: Work with a negotiator who only works for leaseholders.

Freeholders make fantastic customers – they frequently have large portfolios of properties. This means lots of repeat work at a good rate.

Leaseholders are the opposite – most only extend a lease once.

Pick a negotiator who is not worried about trying to keep your freeholder sweet with the hope of work in the future. Bluntly, a negotiator who only works for leaseholders is likely to be happy to push harder for a fair premium.

We have found a lot of evidence – particularly around ground rent sales – which can be used to argue for a lower premium for our leaseholder clients and challenges the status quo which freeholder’s valuers work hard to maintain. A negotiator who only works for leaseholders can use this evidence without worry the same argument will be used against them next time they are representing a freeholder.

Tactic 3: Ensure your valuation is robust

The premium payable for a lease extension is based on a calculation which in many cases takes into account the sales of flats with long and short leases near to your own, and the sale of the freehold titles to blocks of flats.

During the valuation stage of the lease extension process, we analyse evidence that can be used to undermine the position of the freeholder’s valuer.

Having robust evidence also means you are always in a position to understand whether the freeholder’s latest offer is fair in the context of the evidence available. If it is not, you can choose to press on for another round of negotiations or an application to tribunal in pursuit of a better deal.

Tactic 4: Be ready to go tribunal

Your freeholder has no real incentive to negotiate. If you don’t reach an agreement, your application to extend the notice is considered withdrawn and you have to pay their costs anyway.

A field trip to tribunal on the other hand is unappealing to them as well as you – as they have to pay their own costs.

As a result, you should use a firm who is willing to make an application to have the premium determined by the First Tier Tribunal.

While it is quite uncommon for lease extension cases to ever make it to tribunal – you need to have it as a genuine threat to ensure you get a fair price and progress is made.

Tactic 5: Don’t forget the costs!

The law states that the leaseholder needs to pay the freeholder’s valuation and legal costs during the lease extension process – although it is important to note this does not include the time the freeholder’s valuer spends negotiating.

While these costs are required to be ‘reasonable’, there has been much debate in tribunals over the years of what ‘reasonable’ means.

Use a firm who is up-to-date with the latest tribunal decisions on costs, and is able to use these as arguments to negotiate the costs down. If this can’t be done informally, it is possible to do it by making an application to tribunal after the lease extension. This can usually done via a written application and inexpensively.

Again, this is a good reason to use a firm that only works for leaseholders – firms that also work for freeholders can be reluctant to challenge costs as it makes it easier for their own fees to be scrutinised next time they are working for a freeholder.

Once we’ve agreed the premium, what comes next?

Once you’ve agreed the lease extension premium with your freeholder’s valuer, the next step is to get the legal changes to your lease and the extension registered at the Land Registry.

Get it all in one place

Homehold’s mission is to get you a fair price for your lease extension, while making the process as simple as possible.

We look after the process from the valuation, through the negotiation stage and oversee the legal changes as well.

We charge a fixed fee of £1,950+VAT for the lease extension process. It is split into three £650+VAT payments, one for each stage.

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Linz is the CEO and co-founder of Homehold. He’s always looking at how we can improve our service and better support you through the lease extension process. If you have any questions about your lease he’d be delighted to help.

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