Lease extension - now or later?

Vicki200685

Does anyone have any insight as to whether I should extend my Lease in light of the recent Government review - I have 83 years left and I have a decent informal offer from my Landlord. Do I sort it now, or wait until possibly 2023 / 2024 when the new legislation may or may not come to pass? I’ll get a better deal but I’m not sure I want to risk leaving it, particularly as there will be a General Election around that time and there is no guarantee the laws will be passed in time. Thanks in advance! 

princeofpounds

We should have a sticky for this question...

All that has happened is that the government has announced an intention to develop draft legislation around leasehold reform 'in due course'.

Whilst we have a statement of an overall political goal, and we know the Law Society report that will be used to inform the draft, we have near-zero knowledge of what the new policies will actually be, or when they will be voted on. These things are often heavily watered-down and delayed, and sometimes outright cancelled.

There is particular uncertainty over how existing leases will be treated relative to new ones. Radically reforming the former is more sensitive, as the government will be ripping up contracts and violating property rights, potentially causing large impairments to the balance sheets of companies that own freeholds. So there is a significant chance any reform there will be more incremental.

So there is really no information with which to answer your question. If I was in your situation, I would certainly want to complete by extension before it slips below 80 years and the step-up in cost for marriage value. I know that they have said they may abolish marriage value, but people seem not to realise that may only mean substituting a different, simpler method of compensation for freeholders, rather than making the cost of extension zero. 

So if the informal offer is similar to or better than statutory, then I'd probably just get it done. If it isn't, or if the freeholder will keep the offer alive for a while, you could wait a year or two max. But I wouldn't be certain you'll know much more by the end of that period.

Grumpy_chap

OP has a good offer - do it now.

eddddy

Bear in mind that you're free to negotiate, if you want - by making a lower counter offer. (But obviously, it might be refused!)

It might also be worth agreeing a fixed legal fee from the freeholder (rather than paying the freeholder's solicitor's hourly rate).

BMilo1

Please don't go for an informal lease extension! You are way more protected by extending your lease via the statutory route. You add 90 years to the lease term and wipe out any ground rent payable on the lease. By negotiating an informal lease extension you risk the freeholder introducing unfavourable terms to your lease such as doubling ground rent/increased service charges etc. This could have implications later on if/when you sell the property as could make it unmortgageable. I'm not sure when or even if the new legislation will be introduced to make lease extensions more affordable but I would say you're better off extending your lease sooner rather than later via the statutory route.

AdrianC

What is this "decent" informal offer?
How does it compare to statutory? https://www.lease-advice.org/calculator/

In 3 years time, your lease will be hitting the magic 80yr barrier... and the statutory price will start to rocket.

princeofpounds

BMilo1 said:

Please don't go for an informal lease extension! 

An informal lease extension is a totally normal thing to do - indeed the vast majority of lease extensions are conducted informally; relatively few go to Tribunal.

Where you are right is that a freeholder can ask for anything they like in an informal extension. But you should never settle for anything that is too different to a formal extension, because you can always fall back on that process if the freeholder does not offer a sensible price and terms. So comparing the two is essential.

But if a freehold really does offer a sensible deal for the informal extension, it is usually better because it does not carry the same time and expense of going to tribunal (the legal fees often more than double). For that reason, most people are happy to accept a modest premium to the likely formal price to conveniently secure an informal extension.

eddddy

BMilo1 said:

Please don't go for an informal lease extension! You are way more protected by extending your lease via the statutory route. You add 90 years to the lease term and wipe out any ground rent payable on the lease. By negotiating an informal lease extension you risk the freeholder introducing unfavourable terms to your lease such as doubling ground rent/increased service charges etc. This could have implications later on if/when you sell the property as could make it unmortgageable. I'm not sure when or even if the new legislation will be introduced to make lease extensions more affordable but I would say you're better off extending your lease sooner rather than later via the statutory route.

This is a bit of a misguided comment.

You're essentially saying that if you agree to a bad deal... you'll end up with a bad deal.

The solution to that problem is... Don't agree to a bad deal!

So one very sensible approach is - attempt to negotiate a good/acceptable deal with your freeholder. If you can't negotiate a good/acceptable deal, then take the statutory route.  I know lots of cases where leaseholders have got good/acceptable deals from informal negotiations.

And FWIW, a leaseholder can still be 'duped' into agreeing to a bad deal, even if they go down the statutory route.


But it might be sensible to take advice from a lease extension valuer and a specialist solicitor, whichever way you approach things.