What is the Informal Lease Extension Process?
- 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.
The Leasehold and Freehold Reform Act 2024 was passed on the 24th May 2024, but is not yet in effect and the date for this is not yet clear. We will update our content as and when the finalised legislation is published.
Some of the expected changes include:
- 990 year standard lease extension for houses and flats
- Standardised format for service charge bills, for greater transparency
- Leaseholders will no longer have to pay their freeholder’s costs when making a claim
- Freeholders who manage their building directly must belong to a redress scheme, so leaseholders can challenge them if needed (already applies to managing agents)
- Ban on sale of leasehold houses, except in specific circumstances and schemes
- Fair and transparent buildings insurance handling fees
- Removal of two year requirement before statutory extension
While the existing act abolishes ground rent on lease extension and new leases, the new act does not cap ground rent on pre-existing leases.
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%).
What is the Informal Lease Extension Process?
- 1
Freehold or Leaseholder make an offer
Freeholder provides an informal offer
Leaseholder provides an informal offer
- 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
- 2
Instruct your RICS surveyor
Tip: Get a Valuation for BOTH the Informal and Formal route
Free initial leasehold advice
- 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
- 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
- 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
What are the Pros and Cons of the Informal Route?
Pros | Cons |
|
|
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.