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Should I accept freeholders offer to extend lease? What are the risks of informal lease extensions?

Jan 29

3 min read

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It starts with an unexpected letter from the freeholder or management company and says something like 'would you like to extend your lease?', setting out the benefits of doing so, followed by offer terms including:

  • the premium payable

  • how many years you will receive in return

  • if the ground rent is being abolished or retained

  • confirmation of landlords legal costs

  • usually some sort of statement that this is a the quickest and easiest way to extend the lease term (which usually isn't correct but freeholders are basically giving you a sales pitch here and have no obligation to be fair or truthfull)


Informal lease extensions - a freeholders best friend

At Peppercorn Law, we have seen all forms of offer letter but they usually follow a familiar pattern of (i) making an offer for an informal lease extension (ii) setting some sort of deadline (iii) requiring a costs undertaking upfront from the leaseholder. They almost never suggest to the leaseholder that independent advice should be taken from a leasehold solicitor or leasehold valuer, and this is usually because the offer will not be in the leaseholders interests, in our experience.



freeholder informal lease extension offer section 42 notice lease extension solicitor Brighton peppercorn law

What are the issues I should be aware of?

For one thing, you need to absolutely clear that you still need valuation advice before proceeding. A leasehold valuer or a lease extension calculator will be able to give you some guidance on the likely price payable to extend the lease, but ensure that you are comparing apples with apples. For example, the leasehold calculator will assume you are removing the ground rent entirely, and that is what part of the premium is paid in lieu of.


So if you freeholder wants to keep the ground rent for the remainder of hte original term (note that its unlawful to crease a new ground rent), then you need to be paying a lower premium to reflect this.


You also need to be wary of paying up front and then receiving a new lease with onerous new lease clauses. Under the statutory lease extension process, you are protected against this, but on the informal track, a freeholder and leaseholder can agree whatever they like. Though an experienced freeholder will often use this to their advantage and require new clauses that will generate money later down the line.


Next steps if you receive an informal lease extension offer


  1. obtain valuation advice

  2. obtain independent legal advice


The property is likely to be your biggest asset, and mistakes are costly to fix, so we urge you to instruct a leasehold solicitor that will know all of the usual freeholder tactics and protect you against these. You may find (and it is common) that your legal advisor suggests avoiding the informal deal and simply proceeding with a s.42 notice to extend the lease, using the right given to you by Parliament, which avoids a lot of the risks of an informal deal.


At Peppercorn Law, we have handled hundreds of formal and informal lease extensions for properties in Brighton and London, and we often see that once a costs undertaking is given to the freeholders solicitors, everything goes quiet and we have to constantly chase to progress things. Often, the route under the Leasehold Reform Act would have been quicker, by ensuring that the landlord replies within 2 months with a counter notice, and produces a draft new lease in accordance with the statutory timelines.


Jan 29

3 min read

0

14

0

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