Informal lease extensions – what’s involved?

13:43 28 August in News & Case Studies

As a leaseholder, you have the statutory right to extend the lease of your residential property under the Leasehold Reform and Urban Development Act 1993. But unless there are at least 21 years left to run on the lease, and you’ve owned the property for a minimum of 2 years, and the freeholder isn’t a charitable housing trust, you won’t be eligible. What can you do?

If you don’t qualify for a statutory lease extension but you are keen to extend the lease on your property, there’s nothing to stop you from approaching your freeholder direct. Any private agreement you negotiate for an informal lease extension will be legally binding, even if you are not following the statutory process. It may also be quicker, and involve lower professional fees.

That said, caution is advised. Without the legal protection of the Leasehold Reform Act, it comes down to the knowledge and skill of the negotiator. Even if you consider yourself to be a property expert, chances are that the freeholders (and most certainly the surveyors acting on their behalf) will have a far greater level of technical and legal expertise that they won’t hesitate to use to their advantage.

The danger is that you may find yourself agreeing to seemingly innocuous new lease terms – ground rent clauses are a favourite feature – that could end up leaving you seriously out of pocket in the longer term and make it hard to sell the property on.

This is why it is essential to have an experienced leasehold valuation surveyor and specialist conveyancing surveyor by your side. Here at South East Leasehold, our Leasehold Team will make sure your interests are protected at every step of the process.

If you do decide to pursue an informal lease extension, here are 6 steps you should take. 

Identify your landlord and assess your chances

Check your lease or the Land Registry if you’re not sure who owns the freehold. Bear in mind that a small private landlord may be more amenable and easier to deal with on an informal basis than a large, professional property investor.

Get a property valuation

Before you enter into any negotiations with your landlord, have a ballpark idea of what your property is worth, and how much a lease extension should approximately cost. Our online calculator will help you get a first idea, while our valuation experts can help you define upper and lower price ranges.

Contact your landlord with an offer

Put forward a ‘reasonable’ offer in writing, using South East Leasehold’s expertise to arrive at a fair price that is based on the minimum time of negotiation, and maximum convenience for all parties concerned. Importantly, reserve the right to serve a formal Section 42 Notice if negotiations stall or prove too costly, assuming you are eligible.

Negotiate the freeholder’s counter offer

The freeholder is likely to reply with a counter offer containing less favourable terms than your initial proposal. For instance, they may offer a shorter lease extension, insist on ground rent increases, demand an excessive premium or ask you to pay their legal/surveying fees. With each party having set out their position, negotiations can now start in earnest. Make sure you have an experienced leasehold surveyor on side to advise you and/or negotiate on your behalf to achieve your desired outcome.

Conclude the right agreement

Having entered into voluntary negotiations, both parties will be motivated to reach an informal lease extension agreement. That said, only you know whether or not the proposed terms are acceptable to you. Perhaps you are happy to agree to a shorter lease term with some ground rent, but at a lower premium? Or maybe only a full 90-year lease extension and no ground rent – the terms you would be entitled to under the Leasehold Reform Act – will do?

Don’t forget Plan B

Even with the best will in the world, if the landlord is not prepared to accommodate your requests and the proposed new terms are simply not appealing, the best thing you can do is to call the whole thing off. Reconsider your eligibility for a statutory lease extension, perhaps waiting until you qualify, and then serve Notice instead.

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