Homeowners could save thousands of pounds when renewing their lease by negotiating with the freeholder rather than going through the statutory process.
Lawyers from London-based Osbornes Law say many leaseholders do not realise that they can reach out to the freeholder to negotiate, and are missing out on an opportunity to save time and money.
Amber Krishnan-Bird, solicitor from Osbornes Law, points out that when negotiating with the freeholder homeowners can tailor the length of the lease to their needs and save money on legal fees.
Krishnan-Bird said: “I have seen many times homeowners ask for a lease extension to be carried out, as they need to remortgage or sell their property, only for them to be shocked at how long it takes. The statutory process takes anything between six months and a year or longer so if you need to extend your lease then it is best to plan in advance.
“Many homeowners don’t realise that there is a much better option of reaching out to the freeholder and voluntarily negotiating a lease extension instead of going through the statutory process. This is also a lot quicker as it can be carried out in as little as a month. A leaseholder simply has to ask the freeholder if they are open to them extending their lease and on what terms?
“A lease extension through the statutory process must be for 90 years on the basis that the ground rent is nil, but under a voluntary negotiation you can change the terms. For example, if you are looking to sell a property and do not want to pay for the full lease extension of 90 years then you could extend it for a shorter period, saving you money. Agreeing terms before solicitors get involved will also save you money on legal fees. The leaseholder can of course refuse, but it is always worth asking before embarking on the statutory process.”
Leaseholders are legally allowed to extend their lease. But it the lease falls below 80 years then ‘marriage value’ kicks in, meaning extending the lease becomes much more expensive.
The second stage of leasehold reform – following the Leasehold Reform (Ground Rent) Act 2022 which came into force earlier this year – promises to scrap marriage value potentially wiping thousands from the cost of a lease extension.
Krishnan-Bird added: “Given the reforms, homeowners may be wondering if it’s better to wait before starting their lease extension. The problem is, we don’t yet know when, or if, the new legislation will come in. In the meantime, it will be difficult to sell or remortgage properties that are not extended while leases continue to run down and become more expensive to extend whilst you wait.
“Another thing many have asked is if you have a lease of less than 80 years is it worth trying to get a better deal with your freeholder by asking to split the marriage value 50/50, arguing that the freeholder will get much less if you extend the lease once the reforms are brought in? In my experience most freeholders are not budging on this, so you have a choice of extending your lease now or waiting in hope of reforms that may not happen.”
I wonder if the author wishes to correct this (the underlined part), “Leaseholders are legally allowed to extend their lease if they have owned the property for two years and the lease has between 80 and 90 years left.” as it is incorrect and might mislead the uninformed.
Other than this, it is important that leaseholders are advised on this by experts, as money is not the only consideration. Often when you try to extend informally (outside the statute), the freeholder will want to introduce terms that wouldn’t be allowed under the statutory process – why? Could this be because it is against your interests, and could be something that would put a future purchaser off? These are things that all need to be considered.
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This is poor advice from Osbournes law. Informal lease extention,s are usually geared in favour of the Freeholder.
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Interesting for a law firm to make a statment against Freeholders. I find a few Freeholders are unaware of tax benfits they lose when negotiating outside of the Act, it appears a few solicitors are also unaware! By negotiating with a Lessee without going the statutory route is to loose the tax that can be reclained on another purchjase. If anyone would care to contact me I can arrange a training course for them and any opther solicitors who are not advsing thier Cleints of these tax benefits!
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The tax saving using the Statutory route is likely to be higher than the value of including spurious ‘freeholder-positive’ terms in an extended lease.
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The reason that there is a formal route is to protect the leaseholder hence why the freeholders tend to put obstacles in the way and delay things. Done informally, the extended lease rarely benefits the leaseholder. I handled a block management contract where the previous managing agent had advised the leaseholders against buying the freehold some 15 years ago, as a result many leaseholders had gone on to spend £25,000 + per flat in extending leases. Those that had formally extended benefitted from zero ground rent, those who had approached the freeholder (& paid the same as those taking the formal route) found themselves with leases showing ground rent of £250 pa (up from £150 pa) which doubled every 15 years. Needless to say that the informal extenders found it more difficult to sell and the mortgage companies that were prepared to fund were few and far between as the lease did not require freeholder to advise the mortgage company of arrears or repossession!
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It is extremely unlikely a freeholder can successfully benefit from forfeiture these days, but the fact that it’s in writing is usually sufficient to deter lenders (computer says no!) and buyers.
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