What is the Informal Lease Extension Process?
11/04/2023
(Last Updated: 07/12/2023)
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8 min read
Key Takeaways
- Either the freeholder or the leaseholder can make the informal offer.
- An independent RICS valuer will determine a fair price for the lease extension premium
- If your freeholder is cooperative you may be able to save time and money, but there are several risks to be wary of too.
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 (known as a Peppercorn Ground Rent), 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 only reduces to zero after the original term expires, 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%).
In this article I run through the Informal Lease Extension Process and explain the Pros and Cons of following this route as opposed to the Formal Lease Extension Process. I'll also answer some of your FAQs; such as how much does the informal route cost, and how long does it take.
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
The 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.
- 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. The best advice is to obtain a RICS lease extension valuation for the formal 90 years and then use this to work out if the premium on offer the number of years is good value; if not, perhaps the formal route would be more advantageous.
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.
Free initial leasehold advice
Arrange a free consultation with one of our experienced conveyancing executives on:
- Lease extension
- Purchasing the leasehold, freehold or share of freehold
- Selling a leasehold property with a short lease
- Extending the lease at the same time as you sell
We specialise in lease extensions and have RICS valuers for the premium/negotiation and solicitors for the section 42 notice and formal or informal extension.
Request a tailored quote for:
- RICS Lease Extension Valuation or L2 Homebuyers Survey
- Serving of the section 42 notice, or section 13 notice on the freeholder
- Negotiation with the freeholder (with the support of your RICS valuer)
- Completion of the legal work, including deed of variation
- Application to Tribunal to determine the premium
- Vesting order for absent landlords
- 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. A common exception to this is a Tyneside Lease, as both parties will want to extent their leases simultaneously.
What are the Pros and Cons of the Informal Route?
Pros | Cons |
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Frequently Asked Questions
HOW-LONG
SURVEYOR
COSTS
DISAGREEMENT
PAYMENT
INCREASE
NEGOTIATE
Written by:
Andrew Boast
Andrew started his career in 2000 working within conveyancing solicitor firms and grew hands on knowledge of a wide variety of conveyancing challenges and solutions. After helping in excess of 50,000 clients in his career, he uses all this experience within his article writing for SAM, mainstream media and his self published book How to Buy a House Without Killing Anyone.
Reviewed by:
Caragh Bailey
Caragh is an excellent writer in her own right as well as an accomplished copy editor for both fiction and non-fiction books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey and mortgage related articles.
