Lease Extensions, a Freeholders perspective
There’s a wealth of information on the internet looking at lease extensions from the point of view of the leaseholder/or tenant. It’s more difficult however, to find reliable information on what a Freeholder should do when faced with a request to extend.
Although it is possible for a lease to be extended by direct negotiation between Landlord and tenant it is normally the case that a Freeholder only becomes aware of their tenant’s desire to extend when they receive a Section 42 notice under The Leasehold Reform, Housing and Urban Development Act 1993 (the Act).
To be deemed valid the tenant’s notice must contain the following information:
- The full name of the leaseholder and the address of the flat;
- Sufficient information about the flat to identify the property to which the application relates;
- Details of the lease including its date of commencement and its terms;
- The premium proposed for the new lease and or other amounts payable where there are intermediate leases involved;
- The terms that the leaseholder proposes for the new lease; (if different from the present lease)
- The name and address of the tenant’s representative if one has been appointed; and
- A date by which the landlord must give his counter-notice, which must be not less than two months from the date on which the tenant’s notice is served
The first step is to contact your solicitors and have them review the notice. If any of the information above is missing the notice may be deemed invalid and reserved. If the notice is valid your solicitor in entitled to request evidence of the tenant’s title and their period of ownership and should do so within 21 days of the date of service of the notice. The tenant (most likely through their solicitor) will have the same 21 days to provide any requested information.
You are also entitled to request a deposit from the tenant following receipt of their notice. This will be equivalent to 10% of the premium stipulated on the notice or £250, whichever is greater.
As Freeholder you also the right to inspect the flat (subject to 3 days notice) which provides an opportunity for a leasehold surveyor to undertake a valuation to be included in the counter-notice.
As well as being served by the date specified in the leaseholder’s notice the counter notice must:
- Agree the tenant’s right to a new lease and accept their terms (or propose alternative terms), or
- Not admit their right and give reasons, which will need to be determined by the County Court, or
- claim a right of redevelopment.; the Landlord can refuse to grant the new lease if he can prove to a court that he intends to demolish and redevelop the building. This only applies to applications where the remaining period of the lease is less than five years from the date when the notice was served.
Failure to serve a counter-notice within the correct time period will give the tenant the right to apply to court for a vesting order compelling the acquisition of a new lease so it is essential to act promptly.
If a premium cannot be agreed following the service of the counter notice both parties can enter into negotiations, normally via their respective surveyors, for a period of between 2 and 6 months. Either side can also apply to the Leasehold Valuation Tribunal during this period should an agreement not be forthcoming.
One important point to note is that the tenant is responsible for your reasonable costs from the date of the initial notice. This includes your solicitor’s costs for any time spent on receiving and serving notices, any necessary investigative work, all other correspondence between the relevant parties and any involvement from your surveyor. Once negotiations commence each side pays their own expenses.
Once a premium is finally agreed between the two surveyors a new lease must be entered into within a further 2 month period. If you do not meet this requirement the tenant can apply to court within a further 2 months and enforce their rights.
Written by Justin Burns BSc MRICS of Peter Barry Surveyors