Should I Accept Freeholders Offer to Extend Lease

Should I Accept My Freeholder’s Offer to Extend the Lease?

If you are a leaseholder facing the need to extend your lease or dealing with an aggressive doubling ground rent or RPI ground rent, you might have received a voluntary offer from your freeholder to extend your lease or adjust the ground rent. These will usually come with a deadline for acceptance, to force you to act quickly. However, care must be taken.

These offers often appear to be quicker, simpler, and less costly than a formal lease extension. However, it’s important to consider the benefits of the alternative route; a statutory lease extension under the Leasehold Reform, Housing and Urban Development Act 1993 (the 1993 Act).

Why would a freeholder make the offer now?

Some are seeking to receive a capital sum now rather than wait for a leaseholder to extend the lease later. Some are worried about changes to the law that may mean less is payable to the freeholder in future.

Why Consider a Statutory Lease Extension?

A statutory lease extension grants the leaseholder an additional 90 years on the existing lease term and reduces the ground rent to zero, based on a premium calculated according to the 1993 Act. The premium can be determined by Tribunal if the parties cant agree.

Is It Really Quicker?

While voluntary offers claim to be faster, they often overlook several factors:

Mortgage Lender Consent: Voluntary agreements typically require consent from any mortgage lender with a charge over the property, which is not necessary for a formal lease extension, leading to potential delays.

Freeholder Delays: The other party may become unresponsive after initial payments, such as valuation fees and initial legal costs, have been made. There is no binding timetable like there would be on the statutory route.

Lack of Deadlines: Without statutory deadlines, freeholders can walk away at any point, leaving you with no recourse but to start the formal process later, causing significant delays. In some cases, the premium for the lease extension will increase because there valuation date has not be fixed as it would be under the formal route.

Related Disputes: Issues like service charges or alterations can derail voluntary negotiations, necessitating a formal process after months of unproductive effort.

Is It Simpler?

Voluntary deals may appear simpler as they avoid the service of formal notices, but there is a risk of the freeholder adding new clauses to the lease, as they have all of the bargaining power in the transaction. Ensuring the flat’s saleability isn’t affected by any new clauses is crucial, which is why obtaining specialist advice from a landlord and tenant solicitor rather than a conveyancer is sensible.

Is It Cheaper?

Freeholders might offer reduced legal and valuation costs, but this needs to be weighed up against agreeing to a higher price to extend the lease. Freeholders will usually only offer a lease extension for the top end of their valuation, rather than meeting in the middle as is the case under the statutory process.

Consider also that you do not need to obtain the consent of your mortgage company to a statutory lease extension. This consent is deemed by law. However, a voluntary lease extension deal will require the consent of your mortgage company; some will charge a fee for this and your solicitor will need to charge for the additional documents and work this generates.

The biggest challenge we currently face is the ever-increasing level of landlords costs for proceeding on a voluntary basis. These are usually required to be paid in advance whether or not the matter completes, which creates a risk that you pay costs without obtaining anything.

Overall, it is not uncommon for a leaseholder to pay over the odds pursuing a voluntary deal, rather than sticking to the safety of the statutory process.

Additional Considerations

With a formal lease extension, the only changes are the 90-year term addition and the ground rent reduction to nil. In contrast, voluntary deals may introduce new, potentially onerous clauses that would be frowned upon by a purchasers solicitor. Legal representation is crucial to protect your asset from unfavourable new lease covenants, such as increased interest rates on late payments, new administration fees or stricter subletting restrictions.

Conclusion

Freeholders are not obligated to act in good faith, and voluntary offers typically serve their interests rather than the leaseholders. While it is possible to negotiate favourable terms outside the formal procedure, it requires careful navigation with legal and valuation advice. Always weigh the benefits of a statutory lease extension to ensure you make the best decision for your situation.

Our specialist team of lease extension experts handle cases day in day out and can guide you through the process, to help you avoid the common pitfalls