/ Money

Extending your lease – let’s all be civil, shall we?

Book with cardboard house

From the minute I put an offer in for my flat, I knew that the 73-year lease was too short. But what I didn’t realise was that purchasing a lease can easily be done informally. Here’s why I think it’s good to talk…

I’m in the process of buying what I can only describe as ‘an incredibly expensive piece of paper’.

My bank is happy to class it as a ‘home improvement’ and lend me a bit extra on my mortgage, but I won’t have anything particularly exciting to show for it. No shiny new bathroom, no smart double-glazing, not even a lick of paint in the lounge. All I’ll get is a piece of paper saying my flat’s lease will be 90 years longer.

When I bought my flat I knew the lease would be a problem – although 73 years sounds like a long time (73 years ago World War Two was just beginning) – in the world of leasehold properties it’s actually quite short.

If your lease drops below 80 years it suddenly costs much more to renew it, as you have to pay an extra chunk of money to your freeholder (called the ‘marriage value’). If your lease drops further, below 70 years, it’s difficult to get a mortgage on the property and therefore trickier for you, the owner, to sell the flat.

How to extend your lease

The good thing about leasehold flats is that there are laws in place that give you the right to buy your lease after you’ve lived in the property for two years. The bad news is that it can be an expensive process.

You have to have a solicitor serve a ‘Section 42’ notice on your freeholder, then you must pay for valuation of the lease and for the freeholder’s own valuation. Finally, when your solicitors have negotiated a price and the transaction’s gone through, you’re also liable for the costs of both parties’ solicitors. Ouch.

I was, however, surprised that many solicitors and advice websites presented this as the only option. It’s an expensive process, with a lot of the money going to solicitors who spend time negotiating the price of the lease. Surely we – as civilised human beings – can simply discuss the price informally and make an agreement? That way when we instruct solicitors to deal with all the paperwork, it will be quicker (good for both of us) and cheaper (good for me).

Informal leasehold purchase

Well, I’m pleased to say that it is possible. Rather than serving a ‘Section 42’ notice on my freeholder, I dropped him an email. I explained the situation and we came to an agreement on getting the flat valued. When the valuation report came back, we had a discussion and agreed a final price.

We’re now engaged in the boring back-and-forth of getting things finalised, but I’m pleased to say that by doing DIY negotiations, we’ve managed to agree a fair price and save me a bit of money in the process. But how many people know this is possible? I’d guess not many, as the ‘informal leasehold purchase’ process isn’t widely publicised, and (for good reason) not many solicitors want to draw your attention to it.

The informal route might not always be desirable – if your stomach turns at the thought of having to negotiate money or even if you just don’t have the time – but it’s certainly an option I’d urge you to consider. Solicitors do a great job sometimes, and they’re crucial for hammering out the nitty-gritty, but sometimes we can save a lot of money by simply talking to each other.

With my new-found DIY skills, I’m keen to see if there are any other situations where we could cut out the middle man and discuss things to save money.

Comments

Hello,

We are in the process of wanting to extend the lease on our flat.
We have owned our flat for 1 year and nine months and need to extend our lease this year as it has approx 81 years outstanding.
Along with 2 other lease holders we have approached the freeholder to extend our lease.
The management company have come back with an offer of extending the lease to 112 years at a cost of £10,000 raising the ground rent from £100 a month to £150 for the first 25 years and then by another £150
This seems absolutely ridiculous to me.

What should we go back with informally?

Hi Pren,

Thanks for your comment. It might be useful to try the Leasehold Advisory Service, there’s a calculator to estimate the price of a lease extension here too http://www.lease-advice.org/

vlc says:
23 May 2016

Is the process for a DIY extention where one owns a share of freehold explained anywhere? I’ve seen mention of a re-grant where only the date is being changed.

Vic – If you are having complications with a share of a freehold, not a leasehold extension or maintenance issue, it might be best to seek professional legal advice.

julia says:
2 August 2016

I have recently agreed to the landlords lease extension offer, and ignorantly failed to read that the ground rent would have to double every 25 years, is it to late for me to now go down the formal route as the property management company say the landlord is not prepared to compromise on a fixed ground rent. Any suggestions please confused and stressed

Since the ground rent is the only income the freeholder gets on the property they own, and it is usually quite a small sum relatively, doubling it every twenty-five years does not seem unreasonable. That will outlast most leasehold ownerships, and for a current leaseholder it will give certainty of the annual expenditure at today’s values for a considerable period into the future. The lease extension improves the marketability of your property and the change in the ground rent terms is part of the price for that.

Elizabeth Nolan says:
12 June 2017

I bought my flat (1 of 2 in a Victorian conversion) 25 yrs ago and with ‘absent freeholder’. In 2007 the person owning the other flat texted saying she’d bought the freehold and did I want to buy half. She is ‘difficult’ to say the least and I didn’t actually believe her; how could she have bought it without my knowledge, and from whom? On applying to remortgage I learn that my lease now only has 60 yrs left and that the other owner did indeed buy the freehold in 2007. (I’ve never received any documentation from her re. this). Can ‘I force’ her to extend my lease or to sell my share to me for the same amount as she paid? All advice welcomed, thank you.

Joe says:
27 June 2017

Hello, our leasehold has just 40 years left. Quote to renew is 70K+ (seems excessive to me, but was done by chartered surveyor). How do I verify this is the correct valuation – other comments here have a lower lease renewal cost and similar term.
Flat worth 325K, peppercorn rent paid at the moment.
Many thanks, Joe

robin jones says:
7 August 2017

Dear all.
We are leasehold practitioners and Chartered Surveyors in London and we see these same questions and concerns arise time after time.
It is a complex area of valuation and law and is not really suited to the DIY approach.
If you do not understand leases do not negotiate on them. It can be a costly mistake. You will not be able in most cases to determine whether an informal settlement is fair and reasonable [nb; it doesnt have to be either outside the Act] as there is no initial point of reference.
A statutary extension protects you as it gives you a defined 90 years extra and removes the ground rent provision. However there are different rules for leasehold houses.
Most firms including ours will give you 15-20 mins off the clock if you have an issue with a short lease so take advantage.
As the old addage goes; “If you think a professional is expensive wait till you see what an amateur costs you..”
Good luck.

[Sorry Robin, your comment has been edited to align with our community guidelines. Please ensure that you refrain from posting anything promotional. Thanks, mods]

Kamil Mocar says:
25 August 2017

Hi, I would like to ask about my one as well, I have 69 years left and purchased with 71 years, so just waitting to pass 2 years as owner of my flat, but I already ask via email about extension and they sent me application for it and asking to pay £150 application fee and they will confirm my eligiblility and calculate the quote. So can I do it without solicitor help? or is it going to be wasting even of that £150? and do I have to wait exactly 2 years to pass or I can do it few weeks in advance? thanks for any advice….

You can certainly do it without involving a solicitor. If I were you I would submit the application one month before the two year restriction expires and see what happens; the worst the freeholder can do is delay it.

Mandy says:
7 November 2017

Is it possible to negotiate a lease extension informally with Local Authority? I have 88years left on my lease. Has anyone ever done this?

Margaret Scullion says:
24 September 2019

I bought a flat on October 2017 with a 63 year lease. I did pay the seller £2000 as they had started the lease negotiations but I did not have the money to extend it. At the time the seller offered 25,000 and the freeholder wanted 42,000. Do you think I could contact the freeholder now and try to negotiate a price or should I get a solicitor to negotiate for an informal lease I really do not want to spend a lot of money on solicitors as it will be hard enough getting the cash to extend but if I do go this route what would be the costs for a solicitor to do this. . Also as there has been government announcements in the past about reforming the lease process for existing leaseholders as well as new builds, do you think anything will come of this in the next 5 years.

Subu says:
14 October 2019

Hi,

To extend the lease on my flat I was told by my surveyor to get a solicitor to serve “Section 42” notice. My surveyor advised to quote £5k to lease extension. The solicitor sent that quote to freeholder. The freeholder came back demanding £15k to extend the lease for 90 years. However the freeholders solicitor contacted me directly and put an offer of around total £6k + a very small increase of annual ground rent fixed for next 20 years. After 20 years it will be renegotiated based on RPI. I am happy to take this offer. I informed my solicitor saying what happened and they wrote back to me saying this “The Landlords Solicitors are breaching the Solicitors Regulation Authority’s code of conduct by contacting you directly. This is because they are not allowed to contact you where you have a Solicitor representing you.”. I am happy with the freeholders offer (via their solicitor) but my solicitor says it has to be done through them and they are asking me to get back to my surveyor to negotiate the price – which means I have to pay more to the surveyor. And then back to the solicitor when they agree on a price – probably higher than what I got.

What should I do now? Should I get another solicitor to process the offer I received directly or do I really have to go through my solicitor and spend the money by following the route she is suggesting?

If the freeholder’s solicitor has breached the code of conduct then, presumably, their offer is null and void, but nonetheless it represents the value of the premium for the lease extension although the freeholder might not agree – but that is their problem. You should not have to be out of pocket on account of this.

I suggest that you continue to use your present solicitor but ask her to negotiate a way out of this predicament on the basis that you get the leasehold extension on the latest offered terms [if they are acceptable to you] and that any additional costs to your solicitor arising from possible misconduct are met by the freeholder’s solicitor. I cannot see the necessity of your surveyor being involved again. He recommended a figure of £5,000 as an opening bid and the response – unauthorised though it was – was within touching distance of that amount. I believe your solicitor should not pursue a course of action that leads to an uplift in the premium; her duty is to achieve the best terms for you.

I should leave the question of whether the freeholder’s solicitor should be reported to the Solicitor’s Regulation Authority to your solicitor to deal with; I feel a report is justified because the consequences could have been detrimental to your interests. The freeholder’s solicitor should report on the breach to their client, the freeholder, who might consider withdrawing their instructions.