How To Negotiate Lease Extension | Trick Revealed
So, you’ve finally found a place you’re comfortable with. The neighbourhood is good, no leaking pipes and no creepy noise are coming from the walls at night, and just when you thought it couldn’t get any better than this, it’s already that time of the year when the landlord wants to raise the rent, potentially threatening your idea of settling down for a bit. Now that will make you think about how to negotiate Lease Extension so you can still retain your property while spending less on Lease Extension cost.
But don’t worry. Not everything has to be sad and gloomy as long as you can still try negotiating your terms with the freeholder. It’s possible to reach a mutual agreement and negotiate a win-win situation for both parties, so nobody is left unsatisfied. In reality, it works like any other negotiation – you just have to find a way that makes both you and your landlord happy.
Once you begin to consider what both parties have to win or lose, it becomes a much simpler process. Of course, you want to pay less but to avoid moving out and looking for another property. At the same time, the landlord wants more money but to avoid looking for a new tenant. With that in mind, you can present an offer that suits both of you and settle on a reasonable lease extension cost.
If you don’t know how much does it cost to extend a lease, there are various ways you can find that out, which we will discuss further. Try these methods that can help you with your negotiation.
When do you negotiate?
There are two ways you can approach this.
● You could take the traditional approach where the leaseholder serves the Section 42 Tenant Notice, which is followed by the Section 45 Counter Notice from the freeholder where they decline the amount suggested and put forward their premium. Negotiations happening at the Section 45 Notice stage involve solicitors, surveyors, and additional expenses that they bring with them.
● You could choose the alternate method where negotiations happen before the leaseholder serves the Section 42 Notice. In case you’re in direct contact with the freeholder or the management company, you can directly write to them stating your intentions of extending the lease and see if they’re open for negotiation. This saves costs that you would normally pay solicitors or surveyors at the Section 45 stage.
At this point, they would either agree to your terms or present you with their own offer, which you can compare with your valuation of the property. If they end up ignoring you, you still have the option of taking the traditional approach and serving them the Section 42 Notice.
You may serve your own Section 42 Notice, but it is a good idea to instruct a solicitor to do it for you because serving a Section 42 Notice is critical, and any errors can allow the landlord to apply to the court to have it dismissed.
Get an RICS Lease Extension Valuation before serving the Section 42 Notice because specialist RICS surveyors can perform a precise valuation of the property and give you a good estimate of how much you should be willing to offer the freeholder to extend the lease while staying in the confines of the Leasehold Reform Act.
Using an online Lease Extension Calculator
There are ways you can calculate your premium online using an online Lease Extension Calculator, which can give you a rough idea of how much the premium is going to set you back. But remember, it only gives you a rough idea because the calculator will give you an amount depending on what data you have input. The freeholder has the right to raise an argument that you are not qualified to value the property and to give any offers based on your valuation.
In circumstances where you do proceed with serving a Section 42 Notice based on a value obtained from an online calculator, the freeholder may ask you to still get the leasehold valuation performed from a qualified RICS Surveyor. This may again add cost to your budget, so proceed with caution.
Open up a dialogue as soon as you can
It is a good idea to establish direct contact with the freeholder and work out a deal that works for both of you. Start discussing your terms early on because the earlier you begin a conversation, the more time you have to convince the landlord in your favour. Get in touch with them directly and try something like, “I would love to continue staying in the apartment, but the increase in the rate is a bit outside of my budget at the moment. Can we discuss this and find something that makes us both happy?” This can open up your opportunity to discuss your terms with the landlord.
Establishing contact with the freeholder before serving the Section 42 Notice will open up a discussion and will give the freeholder an idea of the kind of premium that you have in mind. Depending on their response, you can judge whether they are willing to bend or not. This can help you further down the line when finalising the deal.
This might not help if the freeholder you’re dealing with is a large company because they usually only respond to formal notices to extend the lease.
Serving a Section 42 Notice
Based on how your pre-section 42 notice negotiation goes with your freeholder, you may now ask your solicitor to serve a formal Section 42 Notice for a lease extension. However, keep the following points in mind before including an amount in the offer.
a) Don’t offer too low: If you offer an impractically low amount, the freeholder may outright reject your offer or put a counter-offer that is too high. They could also choose to obtain a formal valuation of the property at your expense. So, choose an amount that’s reasonable, and that gives some room for a discussion
b) Don’t offer too high: Obviously, the freeholder is looking for a good raise, and by offering an amount that is as high as it gets in your leasehold valuation, you’re leaving no room for negotiation. Consider this a missed opportunity to settle on a reasonable premium.
The best way to go about this is by putting forward an offer that is somewhere in the middle of the lowest and the highest premium received from the surveyor’s valuation.
Receiving a Section 45 Counter Notice
If the freeholder accepts your offer, it’s all sorted out. But if they don’t accept the offer, they will propose a revised counter-offer, which is Section 45 Counter-Notice. Now depending on how much different the Counter-offer is and how much you’re willing to deviate from your original offer, there are two possibilities.
If the counter-offer proposed by the freeholder is not significantly different from your original offer and is not setting you back by a huge amount, you may proceed with finalising the deal. Also, if the difference in the amount is not worth spending extra money on your surveyor for negotiating with the freeholder, you may accept the offer and close the discussion.
If you feel the difference amount is too high, you can get your surveyor to negotiate your lease extension. The negotiation will take place between your surveyor and the freeholder’s surveyor to reach a common ground while comparing both their valuations. Remember that the hourly charges for negotiations are remarkably high, and you may end up paying more money for negotiating than the actual difference in premium. So, compare them wisely before going ahead.
So, consider your budget, what exactly you can afford, and how far you’re willing to go to turn the deal in your favor.