What the bargain can contain
The ground rent is the thing to look for. A statutory extension of a qualifying flat lease substitutes a peppercorn for the whole of the new term. An informal extension does not do that automatically, and the new lease may keep the existing rent or introduce an escalating one — in which case a cheaper premium today has been exchanged for a rent obligation that may cost more over the term and may affect what the flat is worth.
Check the term being offered as well. The statutory route adds 90 years to the existing term, and the proposed new regime provides for 990. An informal offer of, say, 60 years sounds generous beside a lease with 75 years left and is substantially less than the statutory entitlement.
And check what else the new lease changes. It is a new document, not an amendment, and other terms can move with it. Reading what is being offered rather than how long it is remains the whole exercise.
The lending question
This is where an informal extension can create a problem that lasts beyond the transaction. Lenders’ instructions differ on leases extended outside the statutory scheme, and at least one major lender has stated in its instructions to conveyancers that leases extended outside the Leasehold Reform, Housing and Urban Development Act 1993 are not acceptable for lending purposes.
That is the position recorded in the professional wording, and it is one lender’s policy recorded at one time — it is not a general rule, it is not every lender, and it is exactly the kind of requirement that moves. The point to take from it is not which lender said what. It is that the route by which a lease was extended is something lenders now look at, so the question has to be asked of the current instructions of the lender that will matter.
The asymmetry is what makes this worth getting right. A statutory extension is accepted everywhere a lease extension is accepted. An informal one is accepted by whoever accepts it, and you find out who that is when you come to sell.