Strictly speaking there is no such thing as an informal lease extension – what I mean by this is that there has to be a degree of formality, legal paperwork, time and cost involved in any extension of a long residential lease.
The issue therefore is how to minimise cost and save time and it’s certainly correct that if it’s possible to avoid going a long way down the statutory lease extension process route this will generally be cheaper and quicker.
The danger of thinking that your freeholder seems to be decent and co-operative and he/she/they have indicated a lease extension will be fine verbally perhaps and for a set amount is that you are effectively putting all of your eggs in 1 basket.
It’s possible that the freeholder may not realise that there are potential tactics they could use to extract a but more money out of you or less favorable terms, such as :-
- a shorter extension than the statutory entitlement; or
- they may try to raise annual ground rent.
If you happen to disclose to the freeholder that you need to extend because you are selling your flat, this potentially increases the risks of relying on the informal approach and in any event, you may well have to start the statutory process with the required notices to satisfy the buyer and their lawyers and lenders so that the notices can be assigned (legally transferred) to them on completion.
There’s nothing inherently wrong in seeking to avoid the statutory process, it is not a necessary requirement to extend your flat lease. However, in almost all cases, except perhaps where you have a share of freehold, you will be well advised to pursue a parallel approach, seeking to extend informally whilst still starting off down the route of serving the notices under the statutory process.
If you can agree an informal lease extension, its essential to get agreement clearly documented as quickly as possible. We don’t recommend a verbal agreement.
With lease extensions, one of the biggest costs and frustrations is where a flat owner ends up having to pay for 2 valuations for the premium to extend. this can especially be the case because, whilst there can be differences in the lower and higher value for the premium, except in very rare cases, with leases with less than 70 years and where the flat is in a high value location such as Central London, the difference between the upper and lower valuation could even be less than the cost of the valuations. If you can agree the amount without paying 2 valuations that of course is best. Often, valuers and lawyers who undertake a lot of lease extensions (we do) can possibly offer some general guidelines as a starting point.
If you need advice on an informal lease extension or solicitors generally for extending your lease, we do a lot of this work, and offer fixed fees, so please do get in contact.
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