Brady Solicitors discuss the option of the informal lease extension route for leaseholders looking to extend the lease on their property.
A busy flat owner normally has plenty going on in their lives, so keeping an eye on your lease term might not be a top priority. But what if we told you that on a property with a shorter lease length, you could face difficulty securing the best mortgage deal? This also could impact the saleability of the property should you want to move.
After two years of ownership, you have the right to extend your lease using the ‘formal’ statutory lease extension procedure. However, did you know you can at any time apply to the freeholder for an informal lease extension?
Tighter lending criteria for shorter leases
When you come to sell or re-mortgage your property, you will find lenders are more stringent with lending on properties with a shorter lease length. All lender requirements vary but in general they will wish to see the mortgage term plus 35-45 years left on the current lease.
Another aspect to consider carefully is something called ‘marriage value’. When a lease has less than 80 years to run, the marriage value kicks in which means you will have to a pay a steeper price to increase your lease, so it important to know the remaining years on your lease.
Considering the informal lease extension route
Whilst informal lease extensions may not be right for every situation, they remain a viable option for leaseholders looking for some flexibility when extending their lease. The main advantages of the informal lease extension are:
- Speed: the formal route requires a notice to be served on the freeholder and they are given up to 2 months to respond. Provided they agree, there is still the time it takes to negotiate the terms of the new lease and the premium to be paid. The informal path gives direct communication and there is no notice procedure to follow – the negotiations with the freeholder are therefore hopefully quicker.
- More flexibility and control over the terms: if you are interested in adding a shorter period to your lease to sell your property, the informal route affords a great degree of flexibility and control compared to the ‘one size fits all’ approach with statutory lease extensions where you can only obtain a full 90 years on top of your current unexpired term.
- Improved saleability: maintaining the value of your property at a reasonable cost is one of the most appealing parts of an informal lease extension.
Be aware of potential ground rent increase
In return for negotiating an informal lease extension, the landlord may want to amend the amount of ground rent you pay (unlike with a statutory lease extension, the ground rent is reduced to a nominal or ‘pepper corn’ rate). You do need to take this into consideration as an increase in ground rent could make your property less attractive to potential buyers.
The formal process can take longer and is potentially more costly, but you will automatically have 90 years added onto the current lease. Informal lease extensions offer leaseholders flexibility and the opportunity to enter into direct negotiations with the freeholders. In both cases, it is best to consult with solicitors with experience in lease extensions.
Expert lease extension advice
Our advice is to weigh up the pros and cons before approaching the freeholder for an informal lease extension. Whether you need guidance at the start of this process or an expert eye to look at the lease, contact Brady Solicitors’ lease extension experts; we’d be pleased to help.