Statutory v/s Informal Lease Extension – Benefits and Risks

Investing in a residential property is always considered to be safe. If you own a leasehold property, the value of your property can depend on the remaining number of years left on the lease. You should try to extend your lease before it drops below 80 years. If you own a leasehold property, then after two years you’re eligible to extend your lease. There are 2 ways in which you can do this.  Firstly, with the formal(Statutory) route and secondly but approaching your freeholder directly and asking how much he will want in order to let you extend your lease. This second route is known as an informal lease extension.

Informal Lease Extension

The informal lease extension will not provide any protection whatsoever to you with regards how the freeholder acts. The informal lease extension begins by communicating with the freeholder to see if he is willing to agree to you extending your lease. If so, you can then proceed to the negotiation stage and discuss the lease extension’s new terms, which will include the length of the lease, lease extension cost, and payable ground rent.

There are several benefits that you can get from informal lease extensions:

  1. Minimize the legal cost compared with the statutory cost. (no notice procedures)
  2. Quicker lease extension as no formal process is required to be followed.
  3. No criteria are needed.

The aim of this route would be to reach a mutual agreement. Both sides can negotiate and agree to change the lease terms. You can get a rough lease extension cost calculated by the lease extension valuation calculator online conveniently. With these online calculators, you can obtain an estimated lease extension cost that can be used during your lease extension negotiation process. The leaseholders who don’t have much time and money follow this procedure rather than choosing a statutory process and infusing themselves in professional negotiations for both parties. In this process, any party has the right to change the terms of lease extensions.

As there are no rules, no regulations in this method hence,

  • The freeholders can drag their heels to complete the process.
  • The landlord can ask for any amount of premium and the leaseholder would not be able to apply to the tribunal to determine a reasonable amount as no notices had been served.
  • The landlord can request extortionate professional fees and again the leaseholder would not be able to apply to the tribunal
  • The landlord can simply choose to walk away at any time thereby wasting valuable time.
  • The freeholder has more advantages under this route and that is why the freeholder will usually try to convince a leaseholder to go down the informal route..

Statutory lease extension

The Leasehold Reform Housing and Urban Development Act 1993 controls the statutory lease extension process. Using this process, leasehold owners have the right to extend the lease of their flats. The leasehold owners are therefore urged to follow the statutory lease extension process. To extend the lease on your flat, you need to own the property for a minimum of 2 years.

The formal lease extension has the below list of advantages:

  • You can get a 90-year lease extension on top of your current lease term.
  • The payable ground rent will revert to zero.
  • The lease valuation date is frozen which means in the formal path, the premium value will no longer increase as the term decreases.
  • If you are on the formal path, you would be permitted protection when any dispute occurs. You have the right to take your case to the leasehold valuation tribunals(LVTs).

If you have owned the flat or house for a minimum of 2 years, then we recommend you to go with the formal(statutory) lease extension route. Get guidance from a professional leasehold valuation expert and carry out a lease valuation report. If you have not owned your property for 2 years then you have no choice but to go down the informal route. To get the best advice and guidance on lease extension valuation and lease terminology, you can schedule a 10-minute free consultation with our expert chartered surveyors at Leasehold Valuations.

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