What Is an Informal Lease Extension?
An informal lease extension is a private agreement between you and your freeholder to extend your lease outside of your statutory rights. Instead of serving a formal Section 42 notice under the Leasehold Reform, Housing and Urban Development Act 1993, you simply negotiate directly with your landlord and agree terms between yourselves.
It sounds straightforward. But an informal lease extension is usually fool's gold: it looks attractive on the surface, but when you dig into the details, you discover the flaws.
How It Differs from a Statutory Lease Extension
With a statutory lease extension, you exercise a legal right. Your freeholder must grant you an extension of 90 years on top of your remaining term, reduce the ground rent to a peppercorn (effectively zero), and cannot make significant changes to your lease terms. If you disagree on the price, you can take the matter to the First-tier Tribunal.
With an informal lease extension, none of these protections apply. The freeholder can offer whatever terms they like. They can set any price. They can retain or increase ground rent. They can add new clauses to your lease. And they can walk away from negotiations at any time.
The key question to ask yourself is this: why would a freeholder offer you a better deal than they are required to give you by law?
The answer, in almost every case, is that they wouldn't.
Why Freeholders Prefer the Informal Route
Freeholders are investors. Their goal is to maximise returns from their freehold interest. An informal lease extension gives them opportunities that the statutory route denies them.
Retained ground rent: Under a statutory extension, ground rent drops to zero. Informally, freeholders can keep your existing ground rent in place. A ground rent of £250 per year that doubles every 10 years might seem manageable today, but it becomes a serious financial burden over the life of a long lease.
Shorter extensions: The statutory route guarantees 90 additional years. Informally, freeholders often offer shorter terms (perhaps 40 or 50 years) that force you to extend again sooner, paying another premium.
Higher premiums: Without the statutory formula to anchor negotiations, freeholders often inflate their asking price. You have no legal benchmark to challenge them.
New lease clauses: Freeholders can introduce "modernisations" to your lease that generate income for them. These might include fees for letting your property, charges for alterations, or restrictions that reduce your flexibility as an owner.
Why the 2022 Reforms Made It Even More Black and White
Before the Leasehold Reform (Ground Rent) Act 2022, there was at least an argument that informal extensions could sometimes work in a leaseholder's favour. A freeholder might offer a lower premium in exchange for retaining ground rent, and depending on the specific numbers, this could occasionally make financial sense.
That changed on 30 June 2022.
The 2022 Act prevents freeholders from increasing ground rent on informal extensions. They can keep your existing ground rent (with any escalation clauses already in it), but they cannot add new ground rent or introduce higher rates. For the additional years added to your existing term, the ground rent must be zero.
This sounds like protection for leaseholders, and it is. But it also removes the only legitimate trade-off freeholders could previously offer. Now, when a freeholder proposes an informal extension, they can only do two things: keep your existing ground rent in place, or charge you more for fewer years.
There is no longer any scenario where an informal offer gives you something better than statutory. The 2022 reforms made this more black and white than it has ever been. If the statutory route gives you 90 years with zero ground rent, and the informal route gives you fewer years with retained ground rent, the maths is simple: statutory wins every time.
The Risks You Take
The risks of an informal lease extension are significant and often hidden.
Ground rent traps: Your existing ground rent (and any escalation clauses already in it) can remain. This can make your property harder to sell or mortgage. Halifax and other major lenders now scrutinise ground rent clauses carefully, and properties with onerous terms may be declined.
The timing trap: Freeholders know that marriage value kicks in once your lease drops below 80 years. Some will deliberately drag out informal negotiations until your lease crosses that threshold, then withdraw their offer. When you finally serve formal notice, the premium is significantly higher.
The backdating trick: Some freeholders offer what appears to be a 125-year lease but backdate it to the original lease start date. If your original lease began in 1990 with 99 years remaining, a "125-year lease" backdated to 1990 actually gives you only a few decades more than you had. Always check the start date.
Mortgage and resale problems: Properties extended informally with retained ground rent or unfavourable clauses can be difficult to sell or remortgage. Buyers and lenders are increasingly aware of these issues. What seemed like a saving on the premium can wipe thousands off your property's value.
A Simple Cost Comparison
Consider a flat worth £350,000 with 75 years remaining on the lease.
An informal offer might quote a premium of £8,000, which appears cheaper than the statutory route. However, if ground rent of £250 per year (doubling every 25 years) is retained, the total ground rent paid over the next 90 years exceeds £50,000. Add the reduced extension term, potential lease changes and the impact on resale value, and the "cheap" informal deal becomes extremely expensive.
A statutory extension for the same flat might cost £13,000, but ground rent drops to zero forever. No future payments. No restrictions on sale or mortgage. No hidden costs.
We have had clients who have come to us where they had previously extended their lease informally. But they had paid signficantly over the odds for a lease extension that only barely brought their property out of marraige value, so they were forced to extend their lease all over again.
When Might Informal Make Sense?
In very limited circumstances, an informal extension might have been worth considering. Before January 2025, leaseholders had to own their property for two years before qualifying for the statutory route. If you needed to sell quickly and couldn't wait, informal was sometimes the only option.
However, the two-year ownership requirement was abolished on 31 January 2025. New owners can now serve formal notice immediately. This removes the main reason anyone would previously have considered the informal route. The only other reason is if you are mortgage-free and are in a share-of-freehold type setup, where its a friendly process.
What To Do If You've Received an Informal Offer
If your freeholder has approached you with an informal offer, don't feel pressured to respond immediately. Many offers come with artificial deadlines designed to rush your decision.
Instead:
- Get an independent valuation from a RICS-qualified surveyor who specialises in lease extensions
- Compare the informal offer against what a statutory extension would cost
- Consider serving a Section 42 notice to freeze your valuation date and protect your position
- Even after starting the formal process, you can still negotiate an informal settlement, but now with the statutory protections as your fallback
Our Advice
At Zero Down Lease, we have reviewed hundreds of informal lease extension offers. Less than 5 were actually better deals than the statutory alternative.
That statistic tells you everything you need to know. In our experience, the overwhelming majority of informal offers benefit the freeholder, not you.
The statutory route exists to protect leaseholders from exactly the kind of unfavourable terms that informal deals almost always contain. With the two-year rule now abolished and the 2022 reforms removing any legitimate trade-offs, there are effectively no circumstances where going informal makes sense.
A statutory lease extension is the gold standard. It guarantees 90 years, eliminates ground rent, limits lease changes and gives you tribunal recourse if needed. The premium might appear higher, but it is almost always the better deal when you account for the true long-term costs.
If you've received an informal offer and would like us to take a look please contact us and our team would be happy to review it for you free of charge.
