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Lease Extension – The Process after your Valuation

Wednesday, 13th June 2012 | by: Peter Barry

In past blogs I have covered the many issues in regards to extending or acquiring a new lease; however most of these have only taken us as far as the point of valuation. This blog will focus on the statutory process once your surveyor has produced his report and also look to highlight some potential pitfalls.

The first step to initiate the mechanisms of the Leasehold Reform, Housing and Urban Development Act 1993 is to serve a Section 42 notice on the freeholder; this should be undertaken by either a solicitor or surveyor who is experienced in such matters. I have encountered lessees who wish to attempt this themselves, but I am quick to point out that any discrepancies can render the notice invalid and result in highly negative repercussions.

The requirements of the tenant’s notice are set out in S42(3) of the Act and must contain the following:

  • 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 his 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.

Now in the vast majority of instances your professional will be suitably qualified and experienced and a perfectly valid notice will be served, however there are certain items that are more prone to error than others. The notice must be signed by the tenant who is the registered owner; no one else including a managing agent can sign on their behalf. The proposed premium must be deemed reasonable, so offering an amount that is wholly unrealistic to achieve is certainly not advised. Finally, one of the most common causes of notice invalidity is failure to serve a copy on all relevant third parties to the lease. Section 41 of the Act does provide tenants the right to serve an information request on the landlord who must then provide such details.

Having served the notice, the landlord can require evidence to be produced of the tenant’s title to the flat and their period of ownership. This request must be within 21 days of the notice’s initial date and must be responded to by a further 21 days. Failure to produce such information will result in the notice being deemed withdrawn and in accordance with the Act, leave the tenants unable to reserve for further 12 months.

The landlord can also inspect the flat subject to 3 days notice although this visit will usually be undertaken by his own surveyor in order to produce a valuation figure for the subsequent counter notice. He is also entitled to request the payment of a deposit at any given time. This may be 10% of the tenants proposed premium or £250, whichever is the greater, hence why the initial notice must contain a realistic figure to begin with.

The service of the counter notice now places liability on the landlord and his representatives, as failure respond within the requisite time period entitles the tenant to apply to court for a vesting order to acquire a new lease. This is likely to result in a final premium that is far more favourable for the tenant than himself.

The landlord’s counter notice must:

  • agree the right to the new lease and accept the terms (or alternatively propose alternative terms)

or

  • disagree to the right giving reasons, the validity of which will need to be determined by the county court

or

  • claim right of redevelopment; the landlord can refuse to grant a new lease if he can prove to a court that he intends to demolish and redevelop the building. This can only apply where the lease has less than 5 years left to run from the date of the notice.

So once we have both notices and proposed premiums and should each side be unable to agree a compromise, their surveyors will enter into a period of negotiations. If they are unable to reach a settlement, either party can apply to the Leasehold Valuation Tribunal (LVT) within 6 months but no sooner than 2 months from the date of the counter notice.

I would be very inclined to say that even in cases where applications are made to the LVT, a premium is often agreed before the case is actually heard, especially if the parameters and financial discrepancies are outweighed by the potential cost incurred in going. That said should matters progress this far the LVT’s decision will become binding in a further 28 days, with any appeals to be made to the Lands Tribunal within this period. A draft lease must then be provided within 14 days and this must be entered into with 2 months. Should the landlord still attempt to delay proceedings, the tenant can apply to court with a final 2 months to bind the landlord to his obligations.