What is a Voluntary Lease Extension?

Leases are like a contract between a Landlord and a Leaseholder, sometimes a Management Company will also be involved. If all the parties to the Lease agree, the terms of the Lease can be changed via a voluntary lease extension.

What is a lease?

Leases are, what is known as, a diminishing asset. This means that they are granted for a set number of years and the term decreases year by year. The number of years the lease is granted for or the numbers of years remaining at any time is known as ‘the Term’ of the Lease.  This decrease in the Term has an effect on the value of the property, particularly once the length of the lease reaches 80 years or less and it can be affected from around 85 years.

Once a lease Term falls below 85 years in length, Leaseholders may start to experience trouble in re-mortgaging their property as many lenders require leases to have a minimum number of years above 85 years remaining. Leaseholders may also experience trouble in selling their property to a prospective buyer. In both cases, seeking a lease extension will increase the length of the lease Term and remove this as a potential issue.

How do you extend a lease Term?

The first step is to agree the Heads of Terms for the lease extension. This will be decided through negotiation with the Landlord and will often involve professionals such as surveyors/valuers.  The parties will usually agree:

• the number of years to be added to the Term;
• the premium;
• the ground rent, this should be a peppercorn, although with leases originally granted before 2022 the original ground rent may continue until the end of the original Term and thereafter the ground rent will reduce to a peppercorn; and
• any other terms.

Voluntary lease extensions can change any and all aspects of the lease. However, most often they will focus upon:

• Increasing the term of the lease;
• Changing the physical size of the property;
• Reducing the ground rent to  a peppercorn, which in practice is treated as £0 or £1; or
• Modifications, corrections, and updates.

What are the steps in extending a lease?

The key steps for the voluntary lease extension process are:

• Agreeing of the Heads of Terms with the Landlord and any Management Company.  It will be for you to reach out to the Landlord in the first instance, with support from your surveyor/valuer as appropriate.
• Documenting the Heads of Terms in a written lease extension document.
• Completion of the Lease Extension and registration with the Land Registry.

There is no set timeframe for a voluntary lease extension. Each step of the lease extension progresses as quickly or as slowly as the parties facilitate. As the lease extension is not binding until completion, there is no way to compel the other party to complete the lease extension.

What are the costs for extending a lease?

It is standard for the Landlord to ask the Leaseholder to pay their legal cost and surveyor/valuer costs. They usually ask for payment on account in respect of these costs at the start of the process.

As a result, the potential costs for a Leaseholder for the voluntary lease extension process are:

• Premium for extending the Lease;
• Stamp Duty Land Tax (if the premium is over £40,000);
• The Landlord’s legal and surveyor/valuer costs;
• The Management Company and any other applicable party’s legal costs; and
• The Leaseholder’s legal and surveyor/valuer costs.

Should I extend my lease with a voluntary lease extension?

As a voluntary lease extension is, indeed, voluntary, it is only feasible if the parties have a good working relationship. Where this relationship exists, it can be a quick and cost-effective way to extend a lease when compared to the statutory alternative.

The undefined nature of a voluntary lease extension allows the parties to make more changes to the lease than allowed under the statutory alternative. However, it is this very lack of definition which is its main drawback; there is no timetable to stick to and the negotiation process can go on indefinitely without binding either party to complete the lease extension.  The premium of a voluntary lease extension is also not defined in the same way as a statutory lease extension and therefore the premium for this can vary in comparison.

It will therefore come down to the individual Leaseholder’s circumstances to decide whether a voluntary lease extension is right for you.

How Pinney Talfourd can help

Pinney Talfourd have experienced and specialist solicitors who regularly deal with the lease extension process.

We have established relationships with local surveyors/valuers who will be able to advise you on the premium payable and the best approach to take in negotiations.

We are experts in the field of enfranchisement and are committed to working with you to ensure you achieve the very best possible outcome.

Pinney Talfourd is an established member of the Association of Leasehold Enfranchisement Practitioners (ALEP). This means that we are trusted, accredited solicitors who can offer expert advice. It also means that we have access to a network of vetted professionals who we can assist with every stage of your matter.