Statutory vs Voluntary Lease Extensions: Pros, Cons and Hidden Risks

Introduction

If you are a leasehold property owner, you may have wondered whether to extend your lease and which route to opt for. At the outset, there are two ways to extend your lease:

• A statutory extension under the Leasehold Reform, Housing and Urban Development Act 1993 (“LRHUDA 1993“); or
• A voluntary extension negotiated directly with the landlord.

Key Features of Statutory and Voluntary Lease Extension Regimes

Under the statutory route, qualifying leaseholders have a legal right to a new lease on standard terms if they follow a prescribed process. These rights grant a new lease for the remaining lease term plus 90 years, at a peppercorn ground rent, for a premium calculated under set valuation principles. Subject to commencement and transitional regulations, the Leasehold and Freehold Reform Act 2024 (“LFRA 2024“) will further increase the 90-year term to 990 years, abolish “marriage” value, and introduce standardised valuation rates.

The statutory process begins when the leaseholder serves a formal notice on the landlord. That notice must contain prescribed information. The landlord then serves a counter-notice within a statutory deadline, setting out its position to either admit or dispute the claim. If the parties cannot agree, either may apply to the First-tier Tribunal to determine terms and subsequently complete the grant of the new lease. The tenant should protect the claim at HM Land Registry (usually by unilateral notice) to ensure priority against a disposal of the reversion.

By contrast, a voluntary lease extension is entirely contractual. The leaseholder and landlord simply agree:

• a new term;
• any revised ground rent; and
• any other variations to the lease.

In a voluntary lease extension, there is no fixed procedure, no statutory notice or timetable, and no automatic right to compel agreement. The parties’ rights and obligations are defined by their negotiations and are recorded in the new lease or deed of variation.

Statutory Lease Extensions – Advantages

1. Security of right and enforceable timetable

Once a notice is served by the leaseholder, the landlord cannot simply refuse to proceed without relying on strong grounds. The Act also imposes strict timetables for counter-notices and tribunal applications, which limits the scope for delay and gives both sides a route to a final determination if negotiations stall.

2. Standardised term

Statutory extensions offer predictable headline outcomes: a fixed term of 90 years, transitioning to 990 under LFRA 2024 and a peppercorn ground rent. This removes ongoing ground rent liability and is attractive to lenders and buyers, particularly compared with informal deals that retain or increase ground rent.

3. Structured valuation and cost controls

Premiums under LRHUDA 1993 are calculated using defined principles. These include marriage value, compensation for losses and the reduction in the value of the landlord’s interest. The Act also provides greater cost predictability by restricting the categories of the landlord’s reasonable valuation and conveyancing costs payable by the leaseholder. This restriction extends to their valuation fees and legal costs for the granting of the new lease.

4. Protection for complex titles and mortgages

The statutory scheme contains specific mechanisms to deal with intermediate leases and layered ownership structures through deemed surrender and regrant. This allows the new lease to be granted while preserving the management structure and the leaseholder’s continuous right of occupation, reducing the risk of title “gaps” that can affect saleability of the property. Existing mortgages usually transfer automatically to the new lease as a matter of law, but lenders often require notification and may require a deed of substituted security.

Statutory Lease Extensions – Disadvantages and Risks

1. Procedural complexity

The statutory regime is technical. Notices must contain specified information and be served on the competent landlord within strict deadlines. Errors can invalidate the notice entirely, forcing the leaseholder to re-initiate the process and, in some cases, triggering a 12-month bar on serving a fresh notice. Similarly, the statutory timetable can be relatively lengthier considering that once valuation disputes and any tribunal process are factored in, completion may take several months. In cases where a sale and lease extension are intended to proceed together, there is an additional requirement that both the claim and lease remain in the same ownership.

2. Registration and timing risks

If the leaseholder does not protect the claim at HM Land Registry, a disposal of the freehold or intermediate interest can create priority and practical enforcement risks, increasing the scope for delay and dispute with a new landlord.

3. Valuation complexities

Subject to commencement of the relevant LFRA provisions, statutory valuation remains technical and, for shorter leases, can be materially affected by marriage value, deferment rates, and capitalisation rates. Specialist valuation advice is usually required and different valuers can legitimately arrive at different figures, increasing the likelihood of dispute and tribunal involvement.

Voluntary Lease Extensions – Advantages

1. Flexibility of terms

The voluntary regime offers the parties freedom to tailor the arrangement. They can agree any term length, including shorter extensions that may be sufficient for a planned sale or refinancing, or very long terms if the landlord is willing. The leaseholder can renegotiate other terms such as the parties’ rights and obligations in a way that a statutory route may not accommodate.

2. Procedural simplicity

Without statutory notices, counter-notices or tribunal timetables, a voluntary extension can sometimes be completed more quickly than a full statutory process, particularly where both sides are motivated and advised. Documentation can be combined with other changes such as licences for alterations or wider deeds of variation, allowing a unified commercially negotiated package.

3. Negotiated premium and cashflow management

In some cases, landlords will agree a premium that is lower than a strict statutory valuation, especially where they see commercial benefit in concluding matters swiftly or maintaining a relationship. Leaseholders may also structure the deal so that a higher or continuing ground rent, or other commercial concessions, reduce the upfront premium, which can be attractive where short-term affordability is a priority.

4. Tactical use alongside statutory rights

Leaseholders who qualify for the statutory route can use informal negotiations as a first step, knowing they can still revert to a statutory claim if terms prove unacceptable. The existence of a statutory “fallback” can strengthen the tenant’s negotiating position, provided they do not allow critical time thresholds (such as the 80-year mark) to pass without protecting their position.

Voluntary Lease Extensions – Disadvantages and Hidden Risks

1. Building Safety Act 2022 – Long-term Financial Risk

Perhaps the most significant modern “hidden risk” is the interaction with the Building Safety Act 2022. A statutory lease extension is treated as a ‘replacement lease’ for BSA purposes and preserves qualifying lease status. A voluntary surrender and regrant may not do so unless structured carefully, potentially jeopardising statutory protections. If qualifying status is lost, leaseholders can forfeit statutory caps and protections on building safety remediation costs, leaving them exposed to potentially very large and uncapped service charge liabilities for historic defects. The financial impact may not be apparent at the time of the voluntary extension but can be substantial over the life of the lease.

2. No procedural entitlement

The fundamental drawback of the voluntary regime is that it is entirely consensual. The landlord can refuse to agree, change their mind, or alter their terms at any point pre-completion. There is no statutory timetable, so negotiations can drift, and leaseholders have no inherent right to force progress or to refer disputes to a specialist tribunal. This regime may be a serious risk for leaseholders operating under limited time such as approaching 80 years unexpired or a sale deadline.

3. Unregulated ground rent and premium

While the voluntary regime can sometimes work to the leaseholder’s advantage, it also enables landlords to seek premiums significantly above a likely statutory figure, particularly where the lease is short. Landlords commonly use voluntary extensions to retain or increase ground rent, sometimes with aggressive review mechanisms. Even where the initial rent appears modest, doubling or index-linked clauses can substantially increase the effective cost over time and may make the property less attractive to buyers and lenders.

4. Cost exposure and dispute resolution

Unlike the statutory regime, there is no specific limit or reasonableness cap on the landlord’s legal or valuation costs. Landlords can require the tenant to pay their reasonable professional fees as a condition of proceeding. There is no equivalent specialist tribunal mechanism for determining the premium or compelling terms of a voluntary extension.

5. Title and mortgage complications

Where the freehold is subject to intermediate leases or charges, voluntary extensions can create structurally problematic leases if not carefully managed and structured. For example, a new lease that runs beyond an intermediate headlease can result in periods when the leaseholder’s rights of occupation are unclear, undermining marketability and securitisation. Existing mortgages will usually need to be formally transferred to the new lease by a deed of substituted security or new charge, and the landlord’s mortgagee may need to consent to the grant, adding complexity, delay, and cost.

Conclusion and How We Can Help

While both lease extension regimes can achieve the core objective, they do so in their unique ways. The statutory route offers strong legal rights, a clear procedural framework, standardised outcomes and important protections on costs and title structure. Its drawbacks lie in complexity, timescales and limited flexibility, as well as the need for careful compliance with technical requirements.

In contrast, voluntary extensions offer freedom to negotiate bespoke terms and control the transaction speed. However, they come with material risks: uncapped premiums and costs, ground rent uncertainties, title and mortgage complications, and possible loss of Building Safety Act protections. In practice, the statutory regime is usually preferable where the lease is short, the title structure is complex, or the property is mortgaged. The voluntary regime may be appropriate in simpler cases where both parties are well advised, the leaseholder understands the long-term implications and the negotiated terms are demonstrably at least as favorable as realistic statutory outcomes.

Given there is a need for careful determination on which regime to opt for in each transaction, early advice and careful planning are essential.

Our property team at JLN regularly advises both leaseholders and landlords on lease extensions. We can assist by:

1. Reviewing existing leases, title and other documents to identify any issues, risks or opportunities that may affect your statutory or voluntary lease extension options.
2. Advising you strategically on whether a statutory or voluntary lease extension is likely to be more suitable in your circumstances, including where the lease is approaching 80 years or where there are complex title or mortgage arrangements.
3. Working with specialist valuers to help you understand the likely premium range under each route and to support you in negotiating terms that are commercially and legally robust.
4. Managing the full legal process from initial notice or heads of terms through to completion and registration, ensuring deadlines are met and documents are correctly drafted and executed.
5. Addressing related issues such as Building Safety Act considerations, ground rent provisions, lender requirements and any necessary deeds of variation, so that your position is protected for the long term.

If you are a leaseholder or landlord and would like advice on the regime best suited to your circumstances, we recommend taking early advice by contacting our specialist team.

Please email wewillhelp@jonathanlea.net or call us on 01444 708640 as a first step. Following an initial discussion, we can provide a clear scope of work, a fee estimate (or fixed fee where appropriate), and confirm any information or documentation we would need to review.

We usually offer a no-cost, no-obligation 20-minute introductory call as a starting point or, in some cases, if you would just like some initial advice and guidance, we will instead offer a one-hour fixed fee appointment (charged from £250 plus VAT depending on the complexity of the issues and seniority of the fee earner).

 

* VAT is charged at 20%

This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited. 

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