Owners who acquired their property in the 1980’s, when property was markedly cheaper relative to income, were not expecting their apartment to increase in value as much is has and in most cases did not foresee themselves not being able to afford the extension.

Consequently, the cost of extending the lease in some areas can be prohibitive for many owners, who would often rather cash in and cut their losses than fork out, in some cases, several hundred thousand pounds.

This can sometimes present a point for negotiation in favour of the buyer, but also, a potential risk if not approached in the right way.

How can you know the precise cost extending the lease before you buy?

Typically, the estate agent will quote an estimate provided by the seller. However, it is unwise to use this as a exact sum as the seller may have received this quote verbally from the freeholder, and potentially some time ago, when the lease was longer and the full market value for the property was less.

For example, we recently viewed a property for a client where the agent had quoted the cost for extension to be £120,000. However, after further investigation this was more likely to be in the region of £170,000 to £180,000. (the quote received by the seller from the freeholder was an estimate and more than eighteen months old, since which the market had increased by 15%)

It is important to note that although leaseholders have the legal right to extend their lease, they can only do so after two years of ownership. The only other alternative is to agree in the purchase contract for the seller to pass on the right to extend, which means they start the process and you complete the extension soon after completion.

How is the lease extension calculated?

To calculate the cost of a lease extension, the following factors should be taken into account:

• The length of the lease
• The full market value of the property with an extended lease
• The current ground rent being paid to the freeholder

How do you extend the lease after purchase?

If the seller does not agree to pass on the right to extend, for any reason, this can present an opportunity to negotiate a larger discount from the asking price, but carrying out your research beforehand is imperative.

The first step you will need to instruct your own valuation surveyor who represents your interests. The freeholder will instruct their surveyor also. Both will come up with their own valuation and if an amount cannot be agreed upon you have the right to take the freeholder to the leasehold valuation tribunal (LVT) who has the authority to decide on the correct valuation.  

Points to note

Although the minority of leaseholders end up taking their freeholder to the LVT, it is not unusual for the freeholder to quote an outlandish sum at the outset of negotiations.

A short lease can pose an opportunity to negotiate more than the cost of extending but doing your homework is essential. Overall, buying an apartment with a short lease can be hassle if you do not get the owner to start the extension process prior to purchase.