Voluntary Lease Extensions – common pitfalls
Jolanda Peters (pictured) is partner and head of leasehold enfranchisement at Moore Blatch
Voluntary lease extensions (also known as ‘the informal route’ or a ‘lease extension by agreement’) undoubtedly have many attractions.
However, it’s important not to overlook the common pitfalls that come with informally extending a lease.
If you are considering entering into a voluntary lease extension, you should be aware the benefits of doing so as well as the associated risks.
What is a voluntary lease extension?
A leaseholder who has been the registered owner of the lease of a flat, registered at the Land Registry for two years or more, has a legal right to extend their lease. To do so, the leaseholder must serve a formal notice on their landlord to claim their right to extend their lease.
However, a voluntary lease extension does not require a formal notice to be served. A leaseholder can request a lease extension from their landlord or landlord’s managing agent without having to serve a formal notice of claim.
Adopting this approach certainly has its benefits as there is no legislation imposing terms on both parties.
In contrast, taking the statutory route would require the lease to be granted for an additional 90 years, and the ground rent reduced to a peppercorn.
On the other hand, a voluntary agreement allows you to, for example, increase the term of your lease back up to 99 years – an attractive option for those whose lease may have fallen close to or below the 80-year mark, where the lease becomes more expensive to renew.
Additionally, the statutory route can take six to eight months to complete, sometimes more if the parties involved struggle to come to an agreement.
The voluntary route, being a much simpler process, can be completed relatively quickly – within 1-2 months – and because of this the associated costs are invariably lower.
For all the reasons outlined above, voluntary lease extensions can prove attractive, but these benefits don’t come without risks.
Most importantly, as a landlord is not obliged to come to any agreement, they could outright decline to grant a voluntary lease.
Even if they do agree to grant a lease, they may try to impose more onerous obligations.
A landlord could try to increase the ground rent, widen the scope of service charge provisions or even impose interest rates on late payment.
These are just a few of the more onerous obligations a leaseholder could face.
The legislation within statutory lease extensions does permit amendments to the lease, but only in limited circumstances meaning a leaseholder is protected against a landlord incorporating unfavourable terms in the lease.
In contrast, no such mechanism or protection exists in voluntary leases.
Since by its very nature an informal lease extension is a voluntary process, there is nothing to bind either party into the process, therefore either party can withdraw at any point.
If this happens, a leaseholder is left having to pursue the statutory route if they want to continue with their lease extension – all of which can make the entire process longer, costlier and more stressful than if the statutory route had been followed from the outset.
Voluntary lease extensions are entered into on a regular basis between leaseholders and landlords, who choose to pursue this route for a host of reasons.
Of course, there are many fair landlords, and as such the process can often be positive, efficient and cost effective for all involved.
But this is not a process suited to all.
If you are a leaseholder that would like a more structured approach and can afford the time it can take to complete the process, it pays to pursue the statutory route.