Firstly, you need to understand how property ownership in the United Kingdom works. When you buy a property in the UK it will be either freehold or leasehold. Freehold is a title that gives you a right to own the property in perpetuity. Freehold property consists of land and the building situated on it. Leasehold is a title that gives you a right to own space for a specified time length and this space can be an apartment, house or commercial property.

The majority of apartment leases in the UK are for 99 years and more. When this term expires the leasehold property vanishes and becomes part of the freehold. In order to extend the lease, you will always have to pay a premium to the landlord who ultimately is an owner of the freehold. Even after you buy the leasehold property you will still have to pay for an extension.

How to extend the lease of the apartment
There are two different ways to extend your residential lease. It can be done either via a formal or informal route. 

The informal route is essentially a chit-chat negotiation with your landlord. The agreement can be made within a few hours to a few weeks. Because it is done informally there are no statutory regulations which protect you and your landlord can offer any kind of deal even if it is way out of proportions. Also, the landlord is not obliged to accept any offer made and can reject it without any consequences.

The statutory extension of the property lease is governed by law and when you start this process your landlord is forced to grant you the extension. On average the whole statutory process takes 8 months to complete. When you proceed to extend the lease via the statutory route you will be able to obtain a fairer and transparent deal compared with an informal one.

Which route to choose ultimately depends on your circumstances and your time. Sometimes informal deals can be less costly than statutory.

You need to keep in mind that sometimes the cost of the extension can climb over £125,000. If that happens you will be liable for stamp duty which can add extra expense to your overall extension cost. Also, you are responsible for paying for your own legal and valuation costs as well as your landlords. 

How is the extension calculated?

The premium to extend the lease is calculated by valuers who are regulated by the Royal Institution of Chartered Surveyors. When valuer is instructed he will inspect the property, appraise its value and calculate the premium for the extension. The valuer will also help to negotiate the final premium with your landlord and after you will have to pay for the extension of the lease.

There are some online leasehold extension calculators that can give you a rough idea of the likely premium you will have to pay to your landlord. However, you should be cautious when using a leasehold extension calculator because it is not 100% accurate.

Valuers undertaking lease premium valuation will look at your current lease length (the shorter the lease the more expensive the premium), ground rent and the long lease value of the property. These are the interests that form part of the overall premium you will have to pay to your landlord.

By law in the UK if the property lease is below 80 years it gets more expensive because there is an extra interest which makes the premium more expensive. This is called marriage value which in simple terms is compensation forming part of the overall extension premium. The marriage value is calculated by subtracting the long lease value of the apartment from the short lease value of the apartment and the difference is then split in half between landlord and leaseholder.

Using leasehold extension calculator

As mentioned above leasehold extension calculator can be a great tool for initially understanding the likely cost of the extension. However, the results returned by the calculator should never be used in legal proceedings nor as an opening offer made to the landlord for the extension on statutory terms.

Because the calculator can get the premium wrong if you incorrectly appraise your property value, enter wrong data or when legislation changes in consequence so do valuation variables used to determine the premium. If the calculators are not updated in line with the changes it can significantly differ from the real premium estimates produced by a valuer who will be aware of the actual changes in legislation.

You can try to use the estimates from the leasehold extension calculator to make an opening offer on the informal basis for the extension but there is no way of knowing whether you are getting the right deal and hence why instructing the valuer is paramount to get the actual estimates.