What is a lease extension?
The following is a very simple summary of the statutory lease extension process:
- Leaseholder serves a Section 42 notice on the Landlord
- Landlord (freeholder) confirms the leaseholder has the legal right to extend their lease through the statutory process
- Landlord serves a section 45 notice on the leaseholder
- (if not agreed) Negotiations on the premium and potentially Tribunal if parties can't agree
- Landlord drafts new lease and leaseholder completes
What happens if your landlord rejects your offer?
The main reason for your landlord to reject your offer is the lease extension premium offered. The premium should always be calculated by a RICS valuer that specialises in lease extensions. Some of the reasons for there to be an issue over the premium are:
- leaseholder didn't use a RICS valuer - either choosing a desktop valuer or using an online calculator
- leaseholder didn't put forward a reasonable offer - often starting too low
- landlord didn't use a RICS valuer
- landlord didn't put forward a reasonable counter offer
When the leaseholder and landlord can't agree on the premium then both parties should instruct their respective RICS valuers to discuss how they calculated their premium and look to discuss where there may be errors or areas of disagreement.
The leaseholder has 6 months from the date of the counter notice to come to an agreement with the freeholder, however they shouldn't allow matters to run close to this date as an application to the Tribunal must be lodged before the 6 months ends, otherwise you miss the statutory time limit and will need to start over in 12 months' time. This process is set out here - Leasehold Reform Housing and Urban Development Act 1993 Part I Chapter II Section 48 - Applications where terms in dispute or failure to enter into new lease
When might there be more than one Counter-Notice?
There are occasions where a further Section 45 Counter Notice will be served where an application to Court is dismissed and the Court orders a new Counter Notice to be served.
Landlord's application over validity of tenant's notice is dismissed
"(4)If, however, any such application is dismissed by the court, then (subject to subsection (5)) the court shall make an order—
(a)declaring that the landlord’s counter-notice shall be of no effect, and
(b)requiring the landlord to give a further counter-notice to the tenant by such date as is specified in the order."
Landlord's application to re-develop is dismissed
"(4) Where an application for an order under subsection (1) is dismissed by the court, the court shall make an order—
(a) declaring that the landlord’s counter-notice shall be of no effect, and
(b) requiring the landlord to give a further counter-notice to the tenant by such date as is specified in the order.
(5) Where—
(a) the landlord has given such a counter-notice as is mentioned in subsection (1), but
(b) either—
(i) no application for an order under that subsection is made within the period referred to in subsection (3), or
(ii) such an application is so made but is subsequently withdrawn,then (subject to subsection (7)),
the landlord shall give a further counter-notice to the tenant within the period of two months beginning with the appropriate date."
Top tip: Weigh up the costs of negotiating with the landlord
Where the difference between the landlord's and leaseholders is in excess of £5,000, then spending money on negotiating is advisable. A RICS valuer's charge varies from £150 EXC VAT to £300 EXC VAT per hour. Costs can run to in excess of the difference between the premiums so make sure to balance the cost against the saving.
If your case cannot be resolved then you will need to go to the Tribunal to get the value of the premium resolved. If you are successful in your case then your costs for attending the Tribunal can often be deducted from the premium payable to the landlord, however this isn't always the case which is something else to weigh up before going to the Tribunal. If you need help then please give us a call on 0333 344 3234 (local call charges apply).