What are the Freeholder's Reasonable Costs? (Section 60)
During the statutory lease extension process, a leaseholder is liable to pay the freeholder's reasonable professional costs. But what amount of money is reasonable?
When budgeting the total lease extension costs, it helps to know what the worst-case scenario will be when your freeholder tells you in their Section 45 Counter-Notice what their solicitor and surveyor fees will be. In this article we'll explain what the reasonable costs are, what is unreasonable, and when you need to pay them.
Need further help? For more information on other types of lease extensions, including guides on formal lease extensions and dealing with an absent freeholder, visit our comprehensive guide to leasehold extensions.
- Liability for costs: The leaseholder is currently liable to pay the reasonable costs of the freeholder when extending their lease or buying the freehold (collective enfranchisement).
- Eligible charges: Only certain costs can be charged as 'reasonable' under Section 60.
- Fair pricing: The amount paid for each of those costs must also be deemed 'reasonable'.
- Dispute resolution: If you are in dispute over the freeholder's reasonable costs, you may be able to settle this without having to go to a tribunal.
Important Update: The Leasehold and Freehold Reform Act 2024
The new Leasehold and Freehold Reform Act 2024 contains provisions to abolish the rule that leaseholders must pay their freeholder's legal and valuation costs. However, the secondary legislation required to activate this specific change has not yet been passed. Until it comes into force, you remain legally liable to pay the freeholder's reasonable costs under the existing 1993 Act framework detailed below.
What are the reasonable costs of the freeholder?
Under Section 60 of the Leasehold Reform, Housing and Urban Development Act 1993, the law states:
(1) Where a notice is given under section 42, then (subject to the provisions of this section) the tenant by whom it is given shall be liable, to the extent that they have been incurred by any relevant person in pursuance of the notice, for the reasonable costs of and incidental to any of the following matters, namely—
- (a) any investigation reasonably undertaken of the tenant’s right to a new lease;
- (b) any valuation of the tenant’s flat obtained for the purpose of fixing the premium or any other amount payable by virtue of Schedule 13 in connection with the grant of a new lease under section 56;
- (c) the grant of a new lease under that section;
...but this subsection shall not apply to any costs if on a sale made voluntarily a stipulation that they were to be borne by the purchaser would be void.
Source: Section 60 of the Leasehold Reform, Housing and Urban Development Act 1993
What costs can and cannot be charged?
A freeholder cannot charge you whatever they like. Based on the above legislation, here is what can and can't be charged:
What costs CAN be charged?
- Reviewing the leaseholder's right to extend: Such as their solicitor confirming title details and eligibility.
- Valuation of the premium: The costs of the freeholder's solicitor instructing a valuer and considering the RICS valuer’s report are recoverable. They are viewed as costs “of and incidental to" fixing the premium.
- Serving the Section 45 Counter-Notice: The service of a counter-notice is a crucial step. It is considered reasonable for a landlord to instruct a specialist solicitor to advise on its terms.
- Drafting the varied lease and completion: The final stage where the additional lease term is legally executed.
What costs CANNOT be charged?
- Negotiations: The freeholder's surveyor cannotcharge the leaseholder for their time spent negotiating the premium.
- Tribunal costs: The freeholder's solicitor cannot charge the leaseholder for First-tier Tribunal preparation or attendance costs. Tribunal costs are strictly borne by each party independently (unless one party acts vexatiously).
How do you know what price is a reasonable cost? (Case Law)
Section 60(2) of the 1993 Act provides the legal test for what makes a fee amount "reasonable":
(2) ...any costs incurred by a relevant person in respect of professional services rendered by any person shall only be regarded as reasonable if and to the extent that costs in respect of such services might reasonably be expected to have been incurred by him if the circumstances had been such that he was personally liable for all such costs.
In summary: the freeholder's costs cannot be more than they would be willing to pay out of their own pocket if they couldn't pass the bill onto you.
Sinclair Gardens Investments (Kensington) Ltd v Wisbey [2016] UKUT 203 (LC)
In this case, a leaseholder claimed their freeholder's costs of £1,725 plus VAT were unreasonable. The Upper Tribunal held as follows:
- Service of a counter-notice was a “crucial step". It was reasonable to instruct a specialist solicitor.
- The costs of considering the valuer’s report were recoverable as incidental to fixing the premium.
- It was reasonable for the landlord to use a Grade A (senior) fee earner for the conveyancing work.
- Crucially, it was reasonable to apply a 20% discount to the fees to reflect the fact that the landlord had multiple lease extension claims occurring in the same building, meaning they should have negotiated a bulk discount with their solicitor.
Whilst individual cases may differ, this established a benchmark that £1,725 plus VAT can be considered reasonable for standard legal work.
Mr Kelsall v Metropolitan Property Realizations Ltd [2019]
This case saw a Tribunal determine the following freeholder costs as reasonable:
- Freeholder's legal costs of £3,322 inc. VAT and disbursements totalling £20.40 (£2,768.70 exc. VAT).
- Freeholder's valuer's fees of £1,110 inc. VAT (£925 exc. VAT).
The claimant argued that the hourly rate of the acting solicitor was too high and that a cheaper suburban solicitor should have been used. The Tribunal rejected this, stating:
"The FTT accepts the Applicant's arguments that it is entitled to use the firm of its choice, in this case a longstanding choice of solicitor located in Central London. Of necessity, therefore, the FTT accepts that these solicitors charge Central London rates of which £450 per hour (plus VAT) is not regarded as “excessive”."
Freeholder's costs are unreasonable: What can you do?
Under the formal statutory process, an Application for Determination of Reasonable Costs for Flats and Premises can be made to the First-tier Tribunal (Property Chamber).
The Tribunal will generally deal with the application via a paper hearing to keep costs down (meaning there is no need to attend court in person) unless one party requests an oral hearing. The cost to the leaseholder for their solicitor to prepare and manage this Tribunal application is typically around £900 inc. VAT.
Because the cost of applying to the Tribunal can quickly outweigh the potential savings, it is almost always better to secure a reduction through negotiation first. Try these tactics:
- Request an itemised invoice: The freeholder's solicitor must provide an itemised breakdown of their time. Your solicitor can scrutinise this to identify any time billed for non-recoverable work (such as premium negotiations).
- Make a 'Without Prejudice' Offer: Offer a slightly lower settlement figure. Going to the Tribunal will cost the freeholder unrecoverable legal fees, so they are often inclined to accept a discount ranging from £200 to £600 just to settle the matter quickly.
You cannot use the Tribunal for an informal extension
You cannot apply to the Tribunal to challenge costs if your lease extension is informal. Because the informal route is a private negotiation, you must either negotiate directly with the freeholder to reduce their demands or abandon the informal route and serve a statutory Section 42 Notice to gain legal protection.
Arrange a free consultation with one of our experienced lease extension team on:
- Statutory or Non-Statutory Lease extension.
- Selling a leasehold property with a short lease.
- Extending the lease at the same time as you sell.
- Buying the freehold (collective enfranchisement).
Andrew Boast FMAAT is a qualified accountant, conveyancing specialist and author with over 25 years of experience in the UK property sector. Since beginning his career in 2000 within established SRA and CLC-regulated conveyancing solicitor firms, Andrew has overseen the legal journeys of more than 75,000 clients.
He is the self-published author of the first-time buyer guide: How to Buy a House Without Killing Anyone, and a frequent contributor to mainstream UK media on legislative updates, property law, first-time buyer guides, conveyancing best practices, and stamp duty changes. Andrew specialises in resolving complex title issues, property conflict disputes, and property tax options, streamlining the enquiry process to reduce transaction times and maintaining a client-friendly focus.
Amanda Ambler is a highly accomplished conveyancing specialist with over 15 years of dedicated experience across residential property law, legal compliance, and practice management. Having held senior roles, including Head of Legal Practice and Head of Conveyancing at established UK law firms, Amanda possesses a profound, hands-on understanding of the technical intricacies of the property market.
As the designated Legal Content Reviewer for SAM Conveyancing, Amanda ensures that every guide, legal update, and resource published meets the absolute highest standards of accuracy, regulatory compliance, and factual integrity. Her rigorous review process guarantees that complex property legislation and industry processes are communicated clearly, transparently, and safely for home buyers and sellers alike.
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