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The leasehold scandal – how not to extend your lease

With the issue of leasehold properties now firmly in the spotlight, consumer journalist Christine Toner takes a look at informal leasehold extensions and why they’re never a good idea.

informal leasehold extensions

Leasehold issues

Leasehold homes. They’re an issue we’ve been vocal about for some time here at Homeowners Alliance. Indeed, our Homes Held Hostage report published in March called on the government to put a stop to the shady practice of selling new build houses as leasehold and last week it seemed we finally got a breakthrough with communities secretary Sajid Javid announcing a consultation into banning them. But, as with anything in government, this isn’t going to happen overnight and in the meantime there are many leaseholders – of houses and flats who will be looking into extending their leases.

If your lease is below 90 years, it makes sense to extend (if you’re eligible to – you have to have lived in the property for two years before you get the right to extend it). Even if you’re not planning on staying in the property for long, you’ll want to extend the lease to make it more attractive to buyers. The shorter the lease, the more expensive it is to extend it and the more difficult it will be for potential buyers to get a mortgage on it.

Keep it formal

It can be tempting to enter into informal negotiations with the freeholders when it comes to extending the lease. By coming to an informal arrangement, you will only have to pay your legal and valuation costs – taking the formal route will mean you have to pay both yours and the freeholder’s. But if ever the phrase “false economy” applies, it is here! You may be saving on legal costs but you could be causing yourself no end of problems – and financial issues – by doing so. Here’s why.

Ground rent rises

When you choose the statutory route for extending your lease, your ground rent is reduced to nothing. Amid all the furore surrounding leasehold properties at present, one of the biggest issues is the fact many homeowners are faced with rising ground rents that make their homes expensive to live in and impossible to sell. A formal lease extensions removes this issue.

An informal extension however offers no such security. Indeed, when you informally extend your lease the freeholder can make whatever changes he wants to the agreement – including ground rent hikes!

Proper protection

Doing things formally affords you better protection should things go wrong. As long as you’ve gone down the statutory leasehold route, if there are any disagreements in terms of costs or other disputes you can take your case to a property tribunal.

The long and the short of it

A formal extension will see your lease extended by 90 years. With informal extensions you can extend for a much shorter period of time – for example, 20 years. While this may seem the most cost effective option, you’ll only end up having to pay for the process again in a few years time.

Move quickly

While you can’t start the leasehold extension process until you’ve lived in a property for two years, if you’re currently in the process of buying a leasehold property you can get the seller to start the process and then transfer it over to you – saving yourself the waiting time.  

If you’re thinking about extending your lease, become a member of the HomeOwners Alliance to discuss your options with our Home Helpline team.

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  1. Prakashbhai RohitPrakashbhai Rohit

    Want to extend lease nd my free holder offer me premium but m negotiating. Which way is good to extend lease. Formal or informal?

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