Lease Extension Glossary

Overwhelmed by the all of the Jargon when extending your lease?
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A

Absentee Freeholder

An absentee freeholder is a missing or uncontactable landlord, blocking lease extensions, freehold purchases, and proper building management. Leaseholders can apply for a vesting order through a three-stage court/tribunal process taking 2–3.5 years. Thorough documentation of contact attempts is essential evidence. Indemnity insurance offers a faster workaround for sales.

Appurtenant Property

Appurtenant property refers to additional areas belonging to your flat—garages, parking spaces, gardens, or storage rooms. Under the 1993 Act, these must "belong to," be "usually enjoyed with," and have been "let with" your flat. They must be included in lease extensions or freehold purchases, affecting the premium you pay.

C

Capitalisation Rate

The capitalisation rate determines how much landlords are compensated for lost future ground rent when you extend your lease. Lower rates mean higher premiums; higher rates mean lower premiums. The rate varies based on ground rent amount, lease length, and review provisions. It's a common negotiation point, guided by case law like Nicholson v Goff.

Commonhold

Commonhold is freehold ownership for flats where owners jointly manage shared areas through a commonhold association—no landlord, no ground rent, no expiring lease. Unlike share-of-freehold, there's no lease at all. Currently rare due to industry unfamiliarity and conversion costs, though government policy may require it for new developments.

D

Deferment Rate

The deferment rate calculates how much to compensate landlords for delayed property return. Lower rates mean higher premiums. The Sportelli case established standard rates: 5% for flats, 4.75% for houses. These apply across England and Wales, though factors like location or unusual circumstances may justify different rates. Reforms may change this.

F

Freehold

Freehold is outright ownership of property and land with no time limit. Most houses are freehold; most flats are leasehold. Flat owners can acquire "share of freehold" through collective enfranchisement, gaining building control while still holding leasehold flats. This requires 50% of qualifying leaseholders to participate.

Freehold Vacant Posession Value

Freehold Vacant Possession Value (FHVP) is your property's theoretical worth if owned outright as a freehold with no lease. It's always higher than leasehold market value. FHVP forms the foundation for lease extension calculations, affecting reversion value and marriage value. The relationship between FHVP and market value is called relativity.

G

Ground Rent

An annual payment made by a leaseholder to the freeholder for the land the property sits on. Ground rent varies from peppercorn to escalating amounts and affects mortgages, lease extensions, and property sales.

I

Informal Lease Extension

Informal lease extensions are private agreements outside statutory rights, lacking legal protections. Freeholders can retain ground rent, offer shorter terms, and charge higher premiums. Since 2022 reforms removed legitimate trade-offs and the two-year ownership rule was abolished in 2025, statutory extensions are almost always better—guaranteeing 90 years with zero ground rent.

L

Lease Premium

The premium is the lump sum paid to extend your lease, compensating the landlord for lost ground rent, delayed reversion (getting the property back), and—if under 80 years—50% of the marriage value (increased flat value). Shorter leases mean higher premiums, making early action important to minimise costs.

Leasehold

Leasehold is property ownership for a fixed period, unlike freehold which lasts forever. Most flats are leasehold; when leases expire, properties revert to freeholders. Below 80 years, extension costs rise significantly due to marriage value. Leaseholders have statutory rights to extend leases or collectively purchase freeholds.

Leasehold Reversion

Reversion is the landlord's right to reclaim property when a lease expires. This future right has present-day value called "reversionary interest." Shorter leases mean higher reversionary value, as landlords are closer to regaining ownership. When extending your lease, you compensate the landlord for delaying this reversion—making early extension cheaper.

Long Lease Value

Long lease value is what a property is worth with over 150 years remaining—considered a "virtual freehold." It's essential for calculating lease extension premiums under the 1993 Act. Values are determined using market evidence (preferred) or relativity curves from key cases like Erkman, Sportelli, and Mundy. Even very long leases are worth slightly less than freehold.

M

Marriage Value

Marriage value is the extra value created when combining landlord and tenant interests during a lease extension. It only applies when leases fall below 80 years, requiring leaseholders to pay 50% of this value to landlords. This threshold can double extension costs. Proposed reforms may abolish marriage value entirely.

P

Peppercorn Ground Rent

Peppercorn ground rent means paying one peppercorn annually—effectively zero. Statutory lease extensions legally reduce ground rent to this nominal amount, eliminating recurring costs and future escalation risks. The term exists because leases require some "consideration" to be valid. Since 2022, all new residential leases must also set ground rent at peppercorn.

R

Relativity

Relativity measures a property's value on its current short lease compared to its long-lease value (e.g., 85% relativity means worth 85% of full value). Lower relativity means higher lease extension costs due to increased marriage value. Tribunals prefer local market evidence over relativity graphs. Upcoming reforms may abolish marriage value, making relativity irrelevant.

Reversionary Value

Reversionary value is the compensation paid to freeholders for delaying their property reclaim when you extend a lease. It's calculated using a 5% deferment rate (from the 2007 Sportelli case) and increases as leases shorten. It applies to all lease extensions, unlike marriage value which only affects sub-80-year leases.

S

Section 146 notice

A Section 146 notice is a formal warning landlords must serve before forfeiture proceedings for lease breaches. Residential leaseholders have strong protections: breaches must be tribunal-determined first, reasonable time to remedy is required, and courts rarely grant forfeiture. It's a "yellow card," not an eviction notice most situations resolve without court.

Section 42 Notice

A Section 42 notice is the formal document leaseholders serve to start a statutory lease extension under the 1993 Act. It fixes the valuation date, obligates the landlord to respond within two months, and protects leaseholders if their lease drops below 80 years after service. Importantly any error can invalidate the notice.

Section 45 Notice

A Section 45 notice is the landlord's formal counter-notice responding to a lease extension request. It states whether they accept your right to extend, proposes their premium (typically higher than yours), and outlines lease terms. Landlords must respond within two months; missing this deadline makes your proposed terms binding.

Section 5a Notice

A Section 5A Notice is a legal requirement under the Landlord and Tenant Act 1987 giving leaseholders "right of first refusal" when landlords sell freeholds. Tenants have two months to respond. At least 50% of qualifying tenants must agree to purchase. Selling without proper notice is a criminal offence with fines up to £5,000.

Section 5b Notice

A Section 5b Notice is required when landlords sell buildings at auction, giving leaseholders "right of first refusal" to match the winning bid. Landlords must notify tenants 4-6 months before auction. This protects leaseholders by letting them see market value before deciding whether to purchase collectively. Failure to notify is a criminal offence.

Section 62 Rights

Section 62 of the Law of Property Act 1925 automatically transfers informal property rights (parking, storage, access routes) when land is sold, including lease extensions. Landlords often try to exclude these rights, but tribunals consistently rule against blanket exclusions, protecting leaseholders' existing uses and sometimes elevating them to legal easements.

Statutory Lease Extension

A statutory lease extension is your legal right under the 1993 Act to add 90 years to your lease and reduce ground rent to zero. Unlike informal extensions, freeholders cannot refuse, prices follow a legal formula, and tribunals resolve disputes. Acting before the 80-year threshold avoids costly marriage value.

T

Title Guarantee

Title guarantee is a legal promise protecting property buyers against hidden ownership problems. Full title guarantee covers the property's entire history; limited title guarantee only covers the seller's ownership period. For lease extensions, landlords often offer limited guarantee, but Land Registry protection provides overlapping coverage for most registered leasehold properties.

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