There are two main ‘routes’ to extending a lease – the informal route and the formal route. The formal route is a statutory process which is set out in the current leasehold legislation. The informal route involves the leaseholder or freeholder bypassing this statutory process by simply getting in contact the other party negotiate a lease extension.
How does it work?
Step 1: Calculate your premium
You can use this lease extension calculator provided by the Leasehold Advisory Service to get a ballpark figure for your lease extension premium. While this isn’t a guaranteed sum and there are many factors that can have an influence on your eventual premium, it gives you an idea of what might be an acceptable offer.
A professional surveyor will be able to give you more realistic idea of the kind of premium you can expect to pay, based on the factors affecting your particular property. While there is a cost to this, it could be well worth it as it could give you a stronger base for your negotiations.
Step 2: Get in touch with your freeholder to make an informal offer
Both you and your freeholder can initiate the informal lease extension process with an opening offer for the premium, the length of the extension, and any other terms. Neither party is required to accept these initial terms, and it is recommended that you take legal advice before agreeing to anything.
Leaseholders can either contact their freeholder via the management agency of their flats, or liaise directly with their freeholder. You can find your freeholder’s contact details either on invoices sent to you for ground rent or by downloading the title deed from the Land Registry.
Step 3: Negotiate the lease
Both parties will negotiate until mutually acceptable terms are agreed. It is highly advised to instruct a solicitor specialising in lease extensions to assist you with this process. They will be able to examine the proposed new lease and pick out any issues or disadvantageous terms that you may not have been aware of.
Step 4: Finalise arrangements and register the new lease at the Land Registry
Once negotiations are completed, your solicitor will undertake all the necessary administrative work required to register your new lease with the Land Registry.
There are some potential advantages to negotiating your lease extension without taking the formal, statutory route, including:
It can be cheaper – when taking the informal route, you and your freeholder have more room for negotiation when it comes to your lease extension premium. So, depending on your arrangement, this may work out cheaper than a statutory premium. You also won’t have to pay for serving statutory notices.
- It can be quicker – the formal process sets out specific timelines to allow each party to respond to statutory notices and to negotiate the lease extension. Depending on your circumstances, however, the informal process may allow you to conclude negotiations relatively quickly.
- You can agree any lease term – while the formal route allows you to extend your lease for a further 90 years at zero ground rent, you can negotiate an extension up to 999 years when taking the informal route.
- You can benefit from new ground rent legislation – under the legal changes introduced in June 2022, landlords granting a lease extension are no longer permitted to charge ground rent on the extended term. This means if you have 82 years left on the lease, you will be required to pay the ground rent set out in your current lease for those 82 years. However, the ground rent must be set to zero for the extra years granted through the lease extension.
- It can be more expensive – while we stated above that an informal lease extension could be cheaper in the advantages section, the lack of statutory rules also means it could be more expensive. It entirely depends on the premium your freeholder is willing to accept – as well as any hidden costs that may be payable. For example, some freeholders might charge you a fee to provide you with a quote, and you’ll also usually have to pay a fee to your mortgage lender to get their consent to go ahead.
- It can be slower – again, the fact that there are no timelines involved in the lease extension process can be an advantage, but it can also be a disadvantage. Your freeholder is not obliged to respond within a set time limit, so they can drag their heels if they feel so inclined!
- You may still have to pay ground rent – this will vary from freeholder to freeholder. Some will immediately reduce your ground rent to zero when extending your lease. Others will only give what the law requires them to – namely, your current ground rent for the remaining years on your lease, and then a zero ground rent after that. This might not be helpful if the main issue with your lease has to do with the ground rent provisions, as those would continue for the remaining term and wouldn’t drop to zero ground rent immediately.
- You might be offered a deed of variation – some landlords will try and get around granting you a new lease (which requires them to reduce the ground rent to zero by law) and instead offer you a deed of variation. This effectively changes (or varies) the lease to potentially grant you the additional years – but leaves you paying an onerous ground rent.
- You are not guaranteed an extension of 90 years – while you can extend your lease by a maximum of 999 years, some freeholders won’t be willing to offer this. In fact, some will only offer to extend your lease back up to 99 or 125 years – so if you currently have an 80-year lease, this will constitute an extension of just 19 or 45 years, respectively. However, extending the same lease via the statutory route would leave you with a 170-year lease at the end of the process – and no ground rent.
Don’t go it alone
Some people are tempted to negotiate their lease informally without instructing a solicitor, to reduce their overall spend. While we understand that lease extension is very expensive, failing to instruct a solicitor is usually a false economy.
While many freeholders will negotiate fairly, some may use the informal process as an excuse to charge additional fees and add hidden, unfavourable terms into your lease. A solicitor with a solid understanding of the local market, familiarity with local freeholders and managing agents, and experience in negotiating lease extension terms will be able to ensure you get the fairest possible deal for your money.