Informal Lease Extension Process - What are the Pros & Cons?

17/07/2018
As a leaseholder you have 2 routes to follow if you wish to extend the number of years on your lease:

  • Formal Lease Extension - follows the statutory route adding an additional 90 years onto your current lease term, reducing ground rent to zero (peppercorn), premium calculated within and the process time line governed by statutory parameters.
  • Informal Lease Extension - doesn't follow the statutory route, can agree any length of lease term (up to 999 years), new clauses and ground rent, premium can be for any value and isn't governed by a set time line (if you own a shared ownership property you can only use the informal route until you staircase to 100%).

Download a template letter in Word format

In this article we run through the Informal Lease Extension Process and explain the Pros and Cons of following this route and answer some of the frequently asked questions such as how much does the informal route cost and how long does it take. Click here if you want to read about the Formal Lease Extension Process.

Do you need a solicitor to handle your informal lease extension?

Our panel solicitors specialise in both formal and informal lease extensions and provide fixed fee quotes for the completion of all of the legal work required. To get a competitive quote call 0333 344 3234 (local call charges apply) or click on the following button:

* Specialist Lease Extension Solicitor - Fixed Fees - Process explained in plain English


Fixed Fee, No Sale No Fee with a 5 out of 5 rating

 

What is the Informal Lease Extension Process?

This is the Informal Lease Extension Process from start to finish:


    1

    Freehold or Leaseholder make an offer

Freeholder provides an informal offer

It is common for Freeholders to make an informal offer to extend your lease. The formal wording of an offer would be similar to the following:

"I can confirm that the Freeholder has carried out a Valuation as requested to extend your lease to 99 years for the sum of £15,000..."

The fact a Freeholder has made you an informal offer doesn't mean you have to accept it; you may feel that the premium is too high for the number of years offered (see 'Instruct your RICS surveyor' below) or you may feel that you'll get more value for money by extending using the formal lease extension route.

Leaseholder provides an informal offer

As a leaseholder, you can make an informal offer (i.e. what premium you're offering to pay for extending your lease alongside how many years you want to extend it by) to your freeholder. To do this you need to either:

  • Speak to your managing agent and make your informal offer to them - some managing agents only accept the formal route to extend a lease; or
  • Liaise directly with your freeholder. You can find your freeholder's address on the ground rent receipts provided annually or on the title deeds downloadable for £3 from the Land Registry.

Use our template informal lease extension letter

An informal lease extension valuation letter should include the premium you are offering for the number of years you want to extend by. Download your template letter by clicking the button below.

Download a template letter in Word format



    2

    Instruct your RICS surveyor

There are many online lease extension calculators that can give you a general indication of what you might reasonably expect to pay for your lease extension, however you should instruct a RICS-qualified lease extension valuer to confirm much more accurately how much you should offer, or to confirm if your freeholder's offer is accurate.

As the informal route is an informal negotiation between a freeholder and leaseholder, your freeholder will often offer you a more expensive premium compared to when adding 90 years under the formal route; a RICS valuation can protect you from this by informing you about what premium you should expect to pay for the agreed number of years.

Tip: Get a Valuation for BOTH the Informal and Formal route

Speak to your surveyor and ask them to provide a figure for extending the lease for the agreed informal time period and also the formal 90 years. You can then compare the two and see which is better value.


    3

    Instruct your solicitor

The process is:

  • Your solicitor obtains your formal instruction, ID and proof of funds to pay for the premium
  • Your solicitor receives the payment for your freeholder's solicitor fees
  • Your freeholder sends across the new lease including new lease term, ground rent and any additional clauses the freeholder wants included
  • New lease is reviewed, amended and agreed
  • (if there is a mortgage) Completion of a Deed of Substituted Security
  • Completion takes place where the lease premium is paid to the freeholder along with the freeholder's costs
  • Registration of the new lease at the Land Registry

Make sure you have settled your ground rent and service charge

Freeholders often delay completion if there are service charges or ground rent outstanding.


What are the Pros and Cons of the Informal Route?

Pros

Cons

  • You can extend your lease without having to wait for the statutory 2 years
  • You can agree a more favourable informal deal with your freeholder
  • Share of freeholders can extend the lease to 999 years for zero premium
  • Save money not paying for the formal route's Section 42 Notice

  • The process can take months to complete as it doesn't follow the statutory time limit
  • The freeholder may not offer a favourable lease term or premium
  • The freeholder can increase the ground rent payable each year - often with increases every 10 to 25 years


Frequently Asked Questions

How long does an informal lease extension take?

Unlike the formal lease extension route that follows the statutory process set out within the Leasehold Reform Act, the informal route can take any length of time to complete with no fixed deadline.

Do you need a RICS surveyor to provide an informal valuation?

It is highly advisable that you employ the services of a RICS surveyor to undertake a lease extension valuation based on the additional term being offered by the freeholder or that you are offering the freeholder. If you do not, you run the risk of:
  • Offering your freeholder an unrealistically cheap premium, which will at least delay completion, can make it more expensive or even derail the process; or
  • Accepting too expensive a premium offer from your freeholder and end up paying far more than you need.

What are the costs of the informal lease extension process?

These are the general costs payable during an informal lease extension:

  • £600 to £900* RICS lease valuation
  • £720 to £1,200** Leaseholder's solicitor fees (click to get a competitive quote)
  • £720 to £1,200 Freeholder's solicitor fees
  • £TBC Stamp Duty Land Tax (click to calculate stamp duty for formal lease extension)
  • £TBC Land Registration fees
  • £8 ID fees
  • £6 Official copy of register and title plan
  • £10 Bankruptcy and priority land registry fee (if remortgaging)

* This does not include the cost for negotiating with the freeholder's surveyor if there is a disagreement as to the value of the premium. Surveyors charge for this work on an hourly rate somewhere in the region of £150 to £300 EXC VAT per hour.
** This does not include the cost for negotiating with the freeholder's solicitor. Although the solicitor doesn't confirm the actual cost of the premium, because the surveyuor does this, your solicitor will charge for additional correspondence to the freeholder's solicitor if there are any negotiations to undertake on your behalf. Your solicitor's hourly rate should be in the region of £200 to £300 EXC VAT per hour.

Do you need to pay for the freeholder's solicitor and surveyor's professional fees?

The leaseholder has to pay the reasonable costs of the freeholder for their legal and survey fees and the leaseholder would be expected to pay these to their solicitor on instruction. These are held in your solicitor's client account so your solicitor can give an undertaking to pay them to the freeholder's solicitor.

What happens if you can't agree on the terms of the new lease?

You can become stuck in negotiations where the freeholder won't budge and you can't force them to agree to vary their new lease term because this is the informal process. Getting a RICS lease extension valuation is the best way to avoid this.

How can you pay to extend your lease?

  • Remortgage/further advance - using the equity of your property to pay for the lease extension costs.
  • Personal savings

How much does the informal lease extension ground rent increase by?

The ground rent stated when the lease was originally granted will be worth much less at the point when you come to extend the lease, due to inflation over the years. You can therefore expect your freeholder to increase this figure when you informally extend your lease and they may wish to put in clauses which mean that the figure increases as time passes, for example they might wish it to double every 15 years.

Your solicitor can advise you on the implications of this and may be able to help you negotiate further with your freeholder if a set increase in the contract is unfair.

Does the solicitor negotiate with the freeholder?

Although the solicitor is your legal representative, it is your surveyor who should liaise with the freeholder's surveyor and attempt to agree the premium to pay. The challenge with this is the process is informal and as such you have very little negotiating power with the freeholder. It is very common to not agree on a premium and as such you decide to take the formal lease extension route.

Do you need a solicitor to handle your informal lease extension?

Our panel solicitors specialise in both formal and informal lease extensions and provide fixed fee quotes for the completion of all of the legal work required. To get a competitive quote call 0333 344 3234 (local call charges apply) or click on the following button:

* Specialist Lease Extension Solicitor - Fixed Fees - Process explained in plain English



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