Lease Extensions for Residential Flats – Statutory or Informal Lease Extension?

By February 26, 2018Blog, News, Uncategorized

When the time comes to extend you residential flat lease, you really need to make the right choice. Unfortunately, freeholders’ mandates and client circumstances can vary, which means making up your mind to go down the statutory or informal route may initially prove cumbersome.

On one hand, if you own a low lease flat, you may find it tempting to communicate with your freeholder yourself, in the hopes of reducing or altogether avoiding valuation and legal fees. However, if your landlord happens to have a professional portfolio where exploitation comes to him/her as second nature, you really need to watch out from the outset. Circumstances do  vary and an informal lease extension can in certain situations be advantageous to the leaseholder or freeholder and in some instances both.

Before you make up your mind, here is a little basic info to get you started.

General Information on Residential Flat Lease Extensions

Leases which have an unexpired term of less than 85 to 90 years are now considered short and could cause you problems if you wish to sell your flat. A lease which has an unexpired term of under 80 years is especially considered short, and in this case, you can bet that the property value, resale value and mortgage ability of your flat will be adversely affected.

You will end up paying a premium to your freeholder when you wish to extend the lease and this premium keeps increasing the shorter the lease becomes with the course of time.

Statutory Lease Extension Valuation – A Safe Bet

Through the 93’ Leasehold Reform, Housing and Urban Development Act, leaseholders are entitled to a 90-year lease extension at zero ground rent. In order to qualify, a leaseholder is required to hold a lease which has an original term of 21+ years and he/she needs to be a leaseholder of the said property for at least 2 years.

If you are in the process of purchasing a flat, you can either go through a formal route which guarantees success, albeit certain fees, or an informal route, which carries a unique set of risks.

Informal Lease Extension

A leaseholder or his/her valuer may approach the freeholder and informally negotiate lease extension terms. In most cases, this will entail the freeholder extending the lease to 99 or 125 years, tacking on an inflated premium, a huge ground rent premium and generally unpredictable review pattern for ground rents. In fact, some freeholders might even ask you for upfront fees before providing you any lease extension terms informally. Always ensure you obtain clarity from the freeholder as to what terms they will propose for an informal lease extension prior to committing to the process by paying an administration or valuation fee for example.

It is widely known that informal lease extension terms for residential flats which are offered ‘voluntarily’ do not generally represent good value for the leaseholder. And should you choose to accept, the extension deed may have layers of adverse clauses which can easily jack up your annual service charge. Furthermore, ground rent escalation clauses can seriously devalue your flat and even cause issues when you wish to sell it. Professional legal and valuation advice is therefore imperative prior to committing to an informal lease extension. Here at Blakes Chartered Surveyors, we can advise you on the valuation and legal aspects through our associate solicitors who specialize in this field of law.

Statutory Lease Extension

When you claim a statutory lease extension, you automatically get a 90-year extension on the current unexpired term with peppercorn/nil ground rent, throughout the duration of the lease. This is the standard route that’s recommended for a number of reasons:

  • Lease extension is guaranteed
  • New lease is regulated – the landlord cannot ‘jack up’ future revenue through unreasonable means
  • New lease terms are governed by the 93’ Act mentioned above – if a landlord attempts to include unreasonable clauses, the leaseholder may approach the Property Chamber tribunal for a resolution
  • If your landlord is not responding at all, you are still eligible to extend your lease

No need to rely on a lease extension calculator or try your luck at an informal lease extension – our comprehensive lease extension service along with a dedicated lease extension surveyor will coordinate the entire process from inception to completion.

Call us today for an initial consultation to discuss your options. We can offer a fully managed fixed fee arrangement for your prospective lease extension.