Leasehold extensions

'Wait and See' or agree terms now?

Should You extend your lease now or wait?

This difficult question has an uncertain answer and very much turns on your individual circumstances. 

The Leasehold and Freehold Reform Act 2024 was passed by the outgoing Conservative Government in May 2024 - but most of its reforms are not yet in force.  Once it is in introduced it should make it cheaper for people with leases with less than 80 years remaining or with a high ground rent to extend their leases plus it will introduce longer extensions to 990 years.

Whether this will make lease extensions cheaper for others where leases have longer to run or who don’t have a high ground rent is not yet clear.

Current position

Key elements of the 2024 Act need more legislation and that includes the rates that are used in valuations to determine how much lease extensions will cost.  The government intend to consult on the rates used to set extension prices in summer 2025 and it seems that primary legislation will be required before these can be implemented.  It therefore looks unlikely that leaseholders will be able to extend leases under the new law until 2026 at the earliest.

Also several groups of freeholders have launched legal proceedings against the Government to challenge provisions in the legislation and a hearing of these is planned for July this year.

Will the reform make a lease extension cheaper for you?

For some leaseholders, the reforms will make extensions cheaper. That’s because the reforms were designed to help people who have short leases below 80 years, by abolishing marriage value.

It also helps people with high ground rents (now or increasing to more than 0.1% of market value), by capping ground rents in the lease extension calculation – although the cap doesn’t apply in all cases. 

The aim of the legislation is to make it easier and cheaper for leaseholders to extend their lease or collectively buy out the freehold of their building. The abolition of marriage value and the removal of the requirement to pay the freeholders’ costs will make the process cheaper for many but that is far from certain in every case.  

The rates that will be used to determine lease extension and freehold purchase prices are set by the “deferment and capitalisation rates” and where these are fixed will determine whether the cost of some lease extensions for leases with more than 80 years to run could rise. 

Every lease is different

Should you wait for the reforms to be implemented?

Given this, it is hard to provide definitive answers but professional advice can you can help  you prepare and plan to suit your needs.

If your lease is already below 80 years or you have a high ground rent, you will most likely be better off waiting for the law to change before extending.

But for some leaseholders it is prudent to consider extending a lease now and not waiting for the reforms - especially if you may need to move or sell in the next year or so or have just over 80 to 82 years left on the lease. 

Does the length of my lease make a difference?

Given the uncertainties surrounding the 2024 Act, it is advisable to seek professional advice to assess your options based on your lease length, financial situation, and future plans. Whether you choose to extend now or wait for the law to take full effect, having a clear understanding of where we are in this interim period will help you make the best decision for your circumstances.

March 2025