Lease Extension of Flats

LEASE Law can assist landlords who have been served a section 42 lease extension notice from their tenant.

Am I required to grant a lease extension to the tenant?

The tenant will qualify for a lease extension if their lease was originally granted for a term over 21 years and they have owned their flat and been registered proprietor at the Land Registry for a minimum of two years.

Once instructed, we will investigate the validity of the section 42 notice that has been served and the entitlement of the tenant to obtain a lease extension. If we find any discrepancies during our investigations, we will ask the tenant’s solicitor to clarify these and will then advise you whether it is likely that the tenant has a valid claim for a statutory lease extension.

If the tenant has a valid claim for a lease extension then you are required to grant a statutory lease extension to the tenant.

What is the cost to me of the lease extension claim?

The tenant is generally responsible for your reasonable costs in connection with the lease extension. This includes your legal costs in connection with investigating the claim, serving the counter-notice and the legal aspects of granting the lease extension and your valuation costs in connection with advising you on the premium that you are likely to obtain for granting the lease extension.

It must be noted that the tenant is not responsible for your costs which are incurred in relation to any negotiations which will include your valuer’s costs in connection with negotiating the premium and any protracted negotiations in relations to the terms of the new lease.

The tenant is also not responsible for any costs that you incur in respect of preparation for or attendance at a Tribunal hearing.

LEASE Law will recover their fees for acting for you from the tenant on a time-cost basis, and if there are any additional costs that are not likely to be recovered from the tenant, we will provide you a breakdown of these estimated additional costs and obtain your agreement to the estimate before proceeding to carry out the work (this includes any Tribunal work).

How long will it take to finalise the lease extension?

We usually estimate that the procedure will take 6-12 months from the service of the initial notice to completion of the lease extension.

We do work with each client and their individual objectives to either speed up or slow down completion of their lease extension. For example, if you would like to complete the lease extension as soon as possible to receive the completion monies as soon as possible then we would work with all the parties to try and accelerate completion of the lease extension.

What is the procedure for granting the lease extension?

The lease extension procedure is commenced when the tenant serves a formal section 42 notice on the landlord offering the premium (which must be realistic) that they are willing to pay for the lease extension which will be advised by their specialist lease extension valuer. The formal offer notice must provide a deadline which is at least two months from the date of receipt of the formal offer notice by which the landlord must respond with their formal counter-notice.

Before the formal counter-notice notice is served, the landlord may request:-

  1. That the tenant pays 10% of the premium offered in the formal offer notice to the landlord’s solicitors to be held as a statutory deposit as security for the landlord’s costs; and
  2. That the tenant provides access to the landlord’s valuer to inspect the flat for valuation purposes; and
  3. That the tenant deduces their title to the flat to the landlord’s solicitor.

The landlord may respond formally in one of the following three ways:-

  1. Admit that the tenant has the right to extend their lease but dispute the premium offered. The landlord must then provide a counter-offer of the premium that they will accept for the lease extension.
  2. Admit that the tenant has the right to extend their lease and accept all the terms in the formal offer notice including the premium offered. In this case the lease extension would proceed to completion.
  3. Dispute that the tenant has the right to extend their lease (there are very limited ways that the landlord can dispute a statutory lease extension claim). The tenant can then apply to the court for a declaration that they are entitled to extend their lease.

It is important to note that if you do not respond at all, the tenant is entitled to their lease extension for the terms set out in their formal offer notice, including the premium offered. Therefore if you have received a section 42 notice from a tenant it is essential that you take action without delay.

In the vast majority of lease extension cases the landlord will proceed via option 1. Following option 1, after the landlord serves their counter-notice, there is an initial period of six months from the date of the counter-notice during which the parties’ valuers will enter into negotiations with a view to agreeing the premium and the parties’ solicitors will enter negotiations with a view to agreeing the terms of the new lease.

If the premium and/or terms of the lease cannot be agreed within this six month time period then an application will be made to the Tribunal so that the Tribunal can determine the premium payable and/or the terms of the lease. A Tribunal date will be set approximately 4-6 months after the application is made. The parties can continue to negotiate the premium during this time period and if all the terms of the lease extension (including the premium and terms of the lease) are agreed before the Tribunal date then the Tribunal proceedings can be vacated.

If the tenant does not make this application to the Tribunal before the end of the six month period then the lease extension is ‘deemed withdrawn’ and cannot be completed. The tenant will have to pay all the landlord’s recoverable costs in connection with the failed lease extension and will have to wait one year from the date that the lease extension was deemed withdrawn before they can serve another notice (in which case the term of the lease will be shorter and the premium is likely to be more expensive).

Once the terms of the lease extension are agreed between the parties or determined by the Tribunal, the parties have a maximum period of four months to complete the lease extension, which is when the premium and associated costs are paid to the landlord’s solicitors.

How can LEASE Law help me?

LEASE Law are specialist solicitors who can act on your behalf in respect of the legal requirements for granting the lease extension to your tenant. LEASE Law will recover their fees for acting on your behalf from the tenant on a time-cost basis, and if there are any additional costs that are not likely to be recovered from the tenant, we will provide you with a breakdown of these estimated additional costs and obtain your agreement to the estimate before proceeding to carry out the work (this includes any Tribunal work).

The work that we will carry out for you includes receiving and investigating the formal offer notice to check its validity, investigating the leasehold and freehold titles to the subject flat, preparing and serving the counter-notice on the tenant’s solicitor, drafting and negotiating the terms of the new lease and completing the lease extension. We will also liaise with your specialist valuer in respect of the premium as and when necessary.

We can also recommend specialist lease extension valuers who have extensive experience and expertise in this area to ensure that the premium that you receive for the lease extension is as high as possible. Your valuer will provide you with an initial report which will advise you on the premium that you can expect to receive following negotiations and will also recommend the counter-offer premium to put into your counter-notice. Your valuer will also negotiate the premium with the tenant’s valuer on your behalf following the service of the initial notice.

If you would like LEASE Law to assist you, please send a copy of your section 42 notice or have a copy of the section 42 notice to hand, and contact Jade Wilson (jade@leaselaw.co.uk or 0204 511 9100) or Joanna Botley (joanna@leaselaw.co.uk or 0204 511 9101) for a no obligation discussion about your lease extension claim.