If you own a leasehold flat, the number of years remaining on your lease is something that should not be overlooked.
A diminishing lease term can affect the value and marketability of your property and may make it more difficult for a future buyer to obtain a mortgage. The cost of extending a lease can also become more significant as the remaining term reduces. Government guidance highlights 80 years as an important point at which the cost of extending a lease can increase significantly.
If you are considering extending your lease, there are generally two routes available: a formal (statutory) lease extension or an informal (voluntary) lease extension.
Understanding the difference between the two is important before deciding how to proceed.
What is a formal lease extension?
The formal route is a statutory process governed by the Leasehold Reform, Housing and Urban Development Act 1993.
For qualifying flat owners, the current statutory framework provides the right to extend the existing lease by an additional 90 years, with the ground rent reduced to a peppercorn.
The process usually begins with advice from a specialist valuer to establish an appropriate premium for the lease extension. Your solicitor can then prepare and serve the relevant Section 42 Notice on the competent landlord.
Once the notice has been served, there is a prescribed legal process and timetable for the landlord to respond and for the parties to negotiate the premium and terms.
One important recent change is that leaseholders no longer need to have owned their property for two years before commencing a statutory lease extension claim. The two-year qualifying period was removed with effect from 31 January 2025.
This means eligible leaseholders can potentially begin the statutory process much sooner after purchasing their property.
Advantages of the formal route
The principal benefit of a statutory lease extension is certainty.
The legislation provides a framework governing the process and the terms of the new lease. This gives the leaseholder legal protections if agreement cannot be reached with the landlord.
There are, however, strict procedures and deadlines to follow. A leaseholder will normally require both specialist legal advice and valuation advice, and it is important that notices and responses are dealt with correctly and within the relevant timescales.
What is an informal lease extension?
An informal, or voluntary, lease extension takes place through direct negotiation between the leaseholder and the freeholder outside the statutory procedure.
You can approach your freeholder and ask whether they are willing to agree an extension and, if so, on what terms.
This can sometimes provide greater flexibility. For example, the parties may be able to agree the length of the extended lease, the premium and other amendments without following the formal statutory timetable.
However, that flexibility also means that the statutory protections and prescribed terms do not apply in the same way.
The freeholder is not obliged to agree to an informal extension and may propose different terms, which need to be considered carefully.
Why the terms of an informal extension matter
It can be tempting to look primarily at the premium being requested by the freeholder, but the cost of the extension is only one part of the picture.
The proposed lease itself needs careful consideration.
For example, you should understand:
- how many additional years are being added to the lease;
- whether there will be any ongoing ground rent;
- whether the ground rent changes or increases in the future;
- whether any other provisions of the existing lease are being varied; and
- what legal, valuation or administration costs you will be expected to pay.
An informal proposal that initially appears attractive may not necessarily offer the best long-term outcome.
Before accepting an offer from a freeholder, it is therefore important to obtain advice on both the financial terms and the wording of the proposed lease.
Formal versus informal: which should you choose?
There is no single answer that will be right for every leaseholder.
An informal extension may offer a more straightforward route where the leaseholder and freeholder have a constructive relationship and favourable terms can be agreed.
The statutory route, however, offers the protection of a defined legal framework and gives qualifying leaseholders a legal right to pursue their extension rather than relying upon the freeholder’s willingness to negotiate voluntarily.
Before deciding, I would recommend understanding what you are likely to achieve under the statutory process and comparing that with any informal offer made by the freeholder.
This can help you make an informed decision based not simply on the immediate cost, but on the long-term implications for you and your property.
What about the leasehold reforms?
Leasehold law is continuing to change.
The Leasehold and Freehold Reform Act 2024 contains significant further reforms, including a move towards standard lease extensions of 990 years and changes to the way statutory lease extension premiums are calculated. However, not all of the Act’s provisions came into force immediately, so it is important to obtain advice based on the law and procedures that apply at the time you begin your extension.
The removal of the two-year ownership requirement is one reform that is already in force.
Thinking about extending your lease?
Whether you have received an informal proposal from your freeholder or you are considering starting the formal statutory process, obtaining advice at an early stage can help you understand your options and avoid agreeing to terms that could have unintended consequences later.
At Bennett Oakley Solicitors, we can guide you through the lease extension process, explain the difference between the formal and informal routes and work alongside your specialist valuer to help you achieve the right outcome.
If you would like advice about extending the lease on your property, get in touch with Hiba Mansoor and the Residential Property team
This article is for general information only and does not constitute legal advice. Lease extension rights and procedures depend on the individual circumstances of the property and lease.
