Should I Accept My Landlords Informal Lease Extension Offer

It is increasingly common for landlords or managing agents to approach leaseholders with an offer to extend their lease on an informal or voluntary basis. These offers are often presented as quicker, easier and cheaper than the formal statutory lease extension process.

While informal lease extensions can sometimes be favourable, they also carry risks that leaseholders should understand before agreeing to any terms.

What is an “informal” lease extension?

An informal lease extension is negotiated directly with the landlord, outside the statutory framework set out in the Leasehold Reform, Housing and Urban Development Act 1993.  They can commonly be referred to interchangeably as ‘informal’, ‘voluntary’ or ‘non-statutory’ lease extensions.  

Unlike a statutory lease extension, there are no set terms, no guaranteed outcomes and no enforceable timetable. Everything depends on what the landlord is willing to agree, which is often put forward on a ‘take it or leave it’ basis.   

Why informal lease extension offers can look attractive

Landlords often present informal lease extension offers as a quicker and more flexible alternative to the statutory route. They may suggest that the process will be simpler, faster or cheaper overall, but this can be because - in simple terms - informal lease extensions are normally more favourable to the landlord.

In some cases, landlords may approach leaseholders directly before they have taken legal advice, encouraging them to accept the offer quickly; always seek expert advice before committing to an agreement.  

Key risks of informal (non-statutory) lease extensions

The landlord can withdraw or change the terms

With an informal lease extension, outside the statutory process, the landlord can withdraw, delay or change the terms at any stage, right up until completion. This can happen after the leaseholder has already incurred legal and valuation costs.

Ground rent may continue

Unlike statutory lease extensions, informal extensions can retain the existing ground rent in your existing lease. Ongoing ground rent can affect the value of the flat and its mortgageability.

The lease extension may be shorter 

Some informal lease extensions offer only a modest increase in lease length, such as 20 or 30 additional years, rather than the 90-year extension guaranteed under the statutory process.  This can be beneficial if you have limited funds (shorter extensions should cost less) and just need to ‘top-up’ the remaining term to sell the flat, but you should be cautious about accepting short extensions if you are going to keep the flat - you may need to pay to extend it again in the future! 

The price may exceed the statutory premium

Landlords don’t have to follow the statutory valuation principles when deciding what the premium will be for you to purchase an informal lease extension.  As a result, the price may be higher than you would pay on the statutory basis.  

Mortgage lender consent may be required

Informal lease extensions usually require the consent of any mortgage lender, which can involve additional time, legal work, documentation and cost.

Informal lease extensions and selling a flat

Informal lease extension terms are often personal to the existing leaseholder, and a buyer cannot be sure the landlord will agree the same terms, or any terms, once the buyer completes the purchase; for this reason, a buyer may insist the lease is extended on or before completion of a sale.   

A buyer may also need the lease to be extended before they can purchase the flat, due to mortgage company requirements, potentially causing delay or renegotiation.

If you need to fund the lease extension from the sale proceeds, an informal lease extension can however be less rigid in terms of timings, allowing more flexibility (assuming the landlord is agreeable) to time the lease extension completion to coincide with the sale of your flat.  

When might an informal lease extension be appropriate?

An informal lease extension may be suitable where the landlord is cooperative, the terms closely mirror statutory equivalent provisions, ground rent is removed, and timing flexibility is critical.

Even in these cases, it is sensible to compare the informal offer against a statutory lease extension valuation.

Take advice before agreeing

Taking specialist legal and valuation advice before agreeing to any informal, non-statutory lease extension terms can help ensure you understand the long-term implications.

Key points 

Informal (non-statutory) lease extensions can sometimes be a practical solution, but you should seek professional advice to understand any drawbacks.  Understanding how the landlord’s offer compares to your statutory rights is essential.