Have you been contacted directly by your freeholder with an opportunity to extend your lease? Or perhaps they have included in informal offer at the same time as sending you a counter notice with a statutory offer.
The deal might seem attractive and may even appear cheaper than an estimate or offer that you’ve received for a formal lease extension.
This might not be a bad thing
It’s possible that this isn’t a bad thing and your freeholder is suggesting a deal that’s a win-win for both you and them.
But it’s probably is not a good thing for you
Most freeholders are unlikely to offer you a deal which leaves them out of pocket. After all, the vast majority of freeholders are investors who want to make money.
But if the price is right, how can this be?
Not all lease extensions are equal. The bullet points below compare the informal and formal.
An informal lease extension
- may only increase your lease by a few years
- will likely leave you with your existing ground rent (but can't increase it) - this may seem OK at the moment but could cause an issue mortgaging or selling the property in the future.
- can sign you up to a raft of new charges or fees in your lease - which can make your flat hard to sell
- is likely to be done with a brand new lease, which can be time-consuming for your solicitor to review - which will increase your legal costs
- requires consent from your lender, which is an additional piece of legal work that will cost you money
- can be withdrawn at any point by your freeholder
- allows your freeholder to ask for their legal and valuation upfront - so you have already "bought into" the process by the time you actually see the terms of the agreement
Read in more detail about the risks of informal lease extensions.
A statutory lease extension
- will increase the length of your lease by 90 years
- will reduce your ground rent to £0
- is most commonly done using a short document which extends your existing lease, but leaves it much the same
- won’t allow the freeholder to introduce new fees or charges into your lease
- follows a formal timetable where you’re protected
Considering an informal deal
At best, an informal lease extension can be a win-win for both parties. At worst you can end up in a situation that is worse than having a short lease or even make your flat very hard to sell.
If you are considering an informal lease extension you should ask:
- how many years will be added to the lease?
- how much the ground rent will be?
- when and how much any ground rent increases will be?
- whether any additional terms will be added to the lease?
- what is the extra legal cost of reviewing any new terms and gaining consent of your lender?
Only you can choose whether to accept an informal offer, but at Homehold we do not offer advice on Informal Lease Extensions, or complete them as part of our service, because we never think that the leaseholder gets a good deal. The price might be cheaper, but it doesn't mean it is good value.
Finally, you don't have the same protection during the process as you do with a statutory lease extension. This means if the deal does not go the way you want it to, you can end up stuck between choosing between poor terms or pulling out of the process - and wasting lots of time and money while doing so.