Lease Extensions and Freehold Enfranchisement – heading to Tribunal

When leaseholders enact their statutory right to extend their lease or buy their freehold by serving a formal notice of claim on the freeholder it can be an adversarial process. Once a notice is served, if the landlord does not agree with the terms of acquisition proposed in that notice (including price), he has two months in which to serve a counter-notice proposing alternative terms. In practice this invariably happens, and the landlord asks for more money. Following receipt of the landlord’s counter-notice, the parties typically enter into negotiation (more often than not via their surveyors) over price. If the price can’t be agreed, either party has the right to refer the case to the First-Tier Tribunal (property chamber) for determination. This post will describe that process and consider when it is appropriate to have the price of a lease extension or freehold enfranchisement claim determined by the Tribunal.

Once the landlord’s counter-notice is received, the parties have between two and six months in which to agree the premium before a Tribunal application must be made (the application cannot be made within two months, but must be made no more than six months after the date of the counter-notice). Once an application is made, the Tribunal will issue written directions to the parties, containing various deadlines which both the solicitors and the parties’ valuers are required to adhere to, including deadlines for the valuers to exchange valuation calculations, exchange a statement of agreed facts and disputed issues, and exchange expert reports. Most cases are settled prior to the deadline for exchanging expert reports (which are time consuming and therefore costly to prepare), but where they are not, the applicant’s solicitor will prepare a ‘bundle’ for the Tribunal, containing the expert reports and all other documents relevant to the claim so that the case can proceed to a hearing.

The hearing will be in front of a Judge and an expert valuer, who will consider the evidence presented by both parties, allow for cross examination and may also ask questions themselves. Both sides will need professional representation. The Tribunal will expect the valuers to attend and answer questions relating to their expert reports. Depending on the nature and scope of the matters in dispute, barristers may also be employed to act as advocates for the respective parties. Hearings can last anywhere from a few hours to a number of days, depending on the complexity of the case. Once the hearing is concluded the Tribunal will make its determination, usually within 2-4 weeks, and send a written summary of the decision to the parties.

This can be an expensive process. Solicitors’ fees for making the application and preparing the bundle, even for a simple lease extension case, will typically be in the region of £1,500 – £2,000. Surveyors’ fees for preparing the expert report might be around £1,000 – £2,000, depending on the scope of the matters in dispute, and could be a lot higher if the case is complicated, with further fees payable for the surveyor to attend the hearing and present evidence. Barristers’ fees can be equally steep, if one is required to attend.

The good news is that relatively few lease extension and freehold enfranchisement claims culminate in a Tribunal hearing. It’s not uncommon for a Tribunal application to be made, in order to focus the freeholder’s mind on reaching an agreement with a view to avoiding further costs, but in practice most cases are settled well advance of significant hearing costs being incurred. In the majority of cases, the sums in dispute will not justify the costs of a hearing, particularly where the parties are commercially minded enough to compromise in order to avoid those costs. However, where a case is particularly complicated, and where there are significant sums in dispute, a hearing may be proportionate.

We have a team of Chartered Surveyors that specialise in lease extensions, handling hundreds of cases every year, and having experience of representing both leaseholders and freeholders at the Tribunal. You can contact the team on 020 020 7183 2578 or by email.