Voluntary vs Statutory Lease Extensions: Which Is the Better Option for Leaseholders?

A voluntary lease extension, or an informal lease extension as it is sometimes known, is a means of negotiation between leaseholder and landlord (freeholder) to extend the lease on a property, in which there is no set rules: the length of the lease team, ground rent cost and all other costs are all subject to the agreement of the freeholder. This arrangement has often been chosen due to it being the quicker and cheaper route, but is this the best option? The proposals set out in the Leasehold and Freehold Reform Act 2024 (LFRA 2024), if fully implemented, could make Statutory lease extensions an even more favourable option for tenants by reducing the leaseholders costs and reducing the timescale. We have already seen the removal of the 2 year ownership rule implemented, effective from 31^st January 2025 but the remaining proposals have not yet become law.

The Pros and Cons of a Voluntary Lease Extension

The success of an informal lease extension is very much dependant on having a cooperative landlord. It is worth noting that not all landlords will agree to negotiations into a voluntary lease extension, and in fact they are not obliged to do so. This will mean, if the lease needs extending, you will have to take the statutory route. If they do agree to a voluntary extension, be wary of the landlord’s terms and conditions - they may entice leaseholders not to proceed down the statutory route by offering low premiums for the extension but offer lease extensions with a shorter term and escalating ground rents. In short, landlords may try to persuade leaseholders to proceed with voluntarily lease extensions as they want to retain their ground rent income and also keep the value of their interest in the freehold higher.

To avoid being caught out, Holmes & Hills advise looking at all the terms being offered by a landlord carefully. It may be that they try to change other existing lease terms rather than just the term, ground rent amount and review. This could make the new terms more onerous to you. Don’t be afraid to question anything, either through a solicitor or to the landlord directly. If you are offered a low premium, ask why is the premium low? What is the landlord achieving from this low premium? A voluntary lease extension offer is not always what it seems. Look into it carefully, it may look like an amazing deal but there also has to be something in it for the landlord.

A voluntary lease extension can be the best answer if you are trying to sell your property and need the lease extension to complete simultaneously with the sale. The sale proceeds can be utilised to pay the premium; therefore the buyer obtains the extended lease on completion and may have more lenders available to obtain a mortgage with, with better terms as a result of this. This, more often than not, allows for potential buyers to obtain mortgages to buy the property or more lenders offering to lend on the property. This can also be useful if you are purchasing a flat as the seller can obtain the lease extension which will be transferred to you on completion of your purchase.

Why a Statutory Lease Extension May Offer Better Long-Term Value

If you feel that negotiating a voluntary lease extension isn’t the best option for you, a statutory lease extension is the way to go. The term obtained could be significantly greater, granting qualifying leaseholders a legal right to extend by 90 years and there is thebenefit of no ground rent to pay which could equate to better value for money. A statutory lease extension includes the use of a surveyor and solicitor to estimate costs and the draft lease. The strict deadlines imposed the 1993 Act limit the freeholders ability to stall negotiations.Further, as mentioned above, leaseholders now benefit from the fact the 2 year ownership rule has been removed.

As it currently stands, the premium payable and associated costs for a statutory lease extension may be slightly higher than a voluntary lease extension, however, this is set to change if the LFRA proposals are introduced. LFRA proposes to introduce the following to strengthen leaseholders rights:

• Increase the term to 990 years and reduce the ground rent to a peppercorn (£0), upon payment of a premium
• Making it cheaper to extend their leasehold by removing the requirement to pay marriage value
• Improve the transparency of service charges, administration charges and building insurance commissions
• Remove he presumption that leaseholders cover the landlord’s costs when challenging poor practice, instead granting the leaseholders a right to claim their legal costs from their landlord
• Extend access to redress schemes where the freeholder manages the property directly
• Ensure that relevant property sales information is provided to the leaseholder in a  timely manner

Although LFRA received Royal Assent in May 2024, there have been failed challenges from Freeholders in the High Court, however appeal is possible. The proposals await secondary legislation.

Speak to a Lease Extension Specialist

To avoid voluntary lease extension negotiations which may not be favourable toyou, it is important that you always seek specialist advice to see if the lease extension terms you are being offered are good value for money. In addition to this, leaseholders who have a lease term in excess of 80 years should use the lease extension calculator to see if the terms and premium being offered are close to what they could pay for a statutory lease extension, which guarantees an additional 90 years to the existing term at a peppercorn rent.

Speak to our specialist lease extension solicitors today.