The Danger of Lease Extensions outside the act

Timescales may slip and parties cannot drive matters forward in extensions outside the Act. Landlords can withdraw at any time leaving leaseholders with no other option than to re-commence using the Act (if they qualify for the right). Additionally, the Act provides for the treatment of mortgages, meaning that mortgagee's consent can be avoided. That is not possible in voluntary extensions and time, money and goodwill may be lost obtaining mortgagees' consent.

2. Valuation Date

Significant valuation issues arise if a lease's remaining term drops below 80 years. A statutory notice fixes the valuation date at the date the notice was served. If there is no notice there is no "fixing" and the landlord might demand a higher premium if the lease drops under 80 years during voluntary negotiations.

3. Terms

Lease terms can be negotiated freely between the parties. This may take time and can lead to extensions being abandoned. When a statutory notice is served the terms are restricted by the Act making negotiations quicker and simpler. For example, leaseholders can insist ground rents are reduced to a peppercorn and landlords can insist on redevelopment rights.

4. Costs

Lengthy and complicated negotiations can lead to increased legal costs. If a leaseholder has to start again with a statutory notice, legal costs for work completed in the failed voluntary process must be paid as well as the fees for an extension using the Act. Landlords can be left with unrecoverable legal bills if their solicitor has not obtained undertakings from leaseholders' solicitors to pay costs.

If extending under the Act leaseholders have rights to challenge the reasonableness of the landlord's costs.

The cost of the premium may also be increased if the leaseholder is tempted to forego independent valuation advice. A future lease extension or freehold purchase will be more expensive if ground rents have been maintained or increased.

The Act does not dictate that the statutory process must take a long time - it merely provides timescales enforceable in the court or tribunal. Even where the extension is amicable and could otherwise be done outside the Act, both parties should consider using a notice to protect them if matters do not proceed smoothly.

Leaseholders who have not yet owned their lease for two years should think before rushing into a voluntary extension; consider the value of waiting and proceeding within the protection of the Act rather than being held to ransom.