This case study is based on a real instruction. Names, addresses and identifying details have been changed, and figures rounded, to protect client confidentiality.
The offer on the table
Our client owned a one-bedroom flat in Kingston upon Thames with 79 years unexpired and a ground rent of £350 per annum, doubling every 25 years. His freeholder had written to him directly, offering a 90-year extension for £22,000 — described in the letter as a “discount for dealing with us directly and avoiding legal costs.”
He came to us because the offer had a condition attached that he did not understand: the ground rent would be retained at £350 per annum, continuing to double every 25 years, rather than reduced to a peppercorn.
What the informal offer actually cost
An informal (voluntary) lease extension is a private contract. The freeholder can set whatever terms they like, and there is no statutory requirement to reduce the ground rent to nil. That retained rent has a real capital value, and it is a value the leaseholder is paying for twice — once in the premium, and again every year for the next 169 years.
We capitalised the retained rent stream over the proposed extended term. At £350 doubling every 25 years, capitalised at 7%, the rent obligation had a present capital value of approximately £11,800. In other words, the “cheaper” deal transferred an £11,800 liability onto our client that the statutory route would have extinguished.
One risk that has now gone — and one that hasn’t
Until recently there was a second, sharper objection to an escalating rent of this kind. Under the doubling pattern the rent would have reached £1,400 per annum by year 50, and a long lease with a ground rent above £1,000 per annum in Greater London (£250 elsewhere) risked being caught by the assured shorthold tenancy regime, exposing the leaseholder to a mandatory ground for possession over unpaid ground rent.
That risk no longer exists. Section 31 of the Renters’ Rights Act 2025 inserted a new paragraph into Schedule 1 of the Housing Act 1988 excluding fixed-term tenancies of more than 21 years from the assured tenancy regime altogether. It came into force on 27 December 2025 and applies to existing leases as well as new ones. Long leases are no longer capable of being assured shorthold tenancies whatever the level of ground rent, so the so-called “AST trap” is closed, and sellers no longer need a deed of variation or a freeholder’s undertaking to deal with it on a sale.
What has not gone is the commercial effect of an escalating rent. It remains a real annual liability, it still narrows the pool of lenders willing to advance — lender criteria on doubling and index-linked rents are set independently of the AST question — and it still gives a future buyer’s solicitor something to raise. A rent that doubles every 25 years is a drag on saleability, and the leaseholder is the one carrying it.
The comparison
| Informal offer | Statutory claim (s.42), as settled | |
|---|---|---|
| Premium | £22,000 | £28,750 |
| Additional term | 90 years | 90 years |
| Ground rent after extension | £350, doubling every 25 years | Peppercorn (nil) |
| Capital value of retained rent | £11,800 | Nil |
| Freeholder’s costs payable | Not specified | Reasonable valuation and legal costs, statutorily controlled |
| Effect on lender choice and saleability | Narrowing as the rent escalates | None |
| Effective cost | £33,800 | £28,750 |
The outcome
We served a Section 42 notice under the Leasehold Reform, Housing and Urban Development Act 1993. The freeholder’s surveyor counter-proposed £34,000; we settled at £28,750 following negotiation on relativity and the capitalisation rate applied to the existing rent.
Our client paid £6,750 more in premium than the informal offer, and in exchange extinguished a rent liability with a capital value of £11,800, gained statutory cost protection, and removed a term that would have narrowed his choice of lender and buyer for the rest of the lease. On a like-for-like basis he was better off by roughly £5,000 in capital terms, before any allowance for saleability.
That is a smaller margin than the headline comparison suggests, and it is worth being straight about it: the informal offer was not outrageous, it was simply presented in a way that made it look better than it was. Had the freeholder offered the same premium with a peppercorn rent, we would have advised him to take it.
When an informal extension does make sense
We are not against informal extensions, and we negotiate them regularly — including for freeholder clients. They can be the right answer where:
- the leaseholder does not yet qualify, or wants to avoid the statutory timetable;
- the freeholder is offering a peppercorn rent and a term at least as long as the statutory 90 years;
- the building is being dealt with collectively and a negotiated package is faster;
- the lease has a long unexpired term and the sums involved are modest either way.
The point is not that one route is always better. It is that the two are not comparable on premium alone, and a premium-only comparison is exactly what most informal offers invite you to make.
Frequently asked questions
Is an informal lease extension cheaper than a statutory one?
Often it appears cheaper on the headline premium, but the comparison is incomplete unless you also value the ground rent the freeholder retains, the shorter term frequently offered, and the absence of statutory cost controls. In this Kingston case the informal offer was £6,750 lower on premium but around £5,000 worse in total.
Is the ground rent “AST trap” still a risk?
No. Section 31 of the Renters’ Rights Act 2025 excluded fixed-term tenancies of more than 21 years from the assured tenancy regime with effect from 27 December 2025, applying to existing leases as well as new ones. A long lease can no longer be treated as an assured shorthold tenancy however high the ground rent, so freeholders cannot use the Housing Act possession grounds over ground rent arrears, and a deed of variation is no longer needed to resolve the point on a sale.
Does a high ground rent still cause problems?
Yes, for different reasons. Escalating and doubling rents remain a real annual cost, they restrict the range of lenders prepared to advance, and they are a recognised drag on saleability. A statutory lease extension reduces the rent to a peppercorn and removes the issue entirely.
Can I switch from an informal negotiation to a statutory claim?
Yes, provided you qualify — generally you must have been the registered leasehold owner of a flat originally granted for more than 21 years. There is no longer a two-year ownership requirement. Serving a Section 42 notice is often what brings a stalled informal negotiation to a sensible conclusion.
Get an independent view before you accept
If your freeholder has made you an offer, we will tell you plainly whether it is a good one. Blakes Chartered Surveyors are RICS Registered Valuers and members of ALEP, acting for leaseholders and freeholders across London and the South East.
Call 020 7373 7373 or email info@blakessurveyors.com.
