Lease Extension Negligence

Shilpa Mathuradas

What is Lease Extension Negligence?

Solicitors Negligence when a Tenant claims a new lease of a flat under the Leasehold Reform, Housing and Urban Development Act 1993

From failing to advise a client when they purchase a leasehold property about the issues they will experience with a short lease to serving a defective notice, this area has particular pitfalls which may result in a claim for professional negligence against solicitors and surveyors dabbling in this area!

Whether you are a tenant or landlord, it is important to instruct a law firm and surveyor who are familiar with and specialises in the area of lease extensions. There are far too many solicitors and surveyors who hold themselves out as a specialist in this practice area but are not.

Deciding to purchase a leasehold property

However, the negligence may not start with your lease extension solicitor but with your conveyancer who fails to advise you on the purchase that your lease is below 80 years and therefore this will leave you with a larger premium to pay for a lease extension and further that you will have difficulty selling the property as it is unlikely to be mortgageable leaving cash purchasers only who will be in a position to buy. If you had been advised of these issues, you may have at that stage decided not to proceed. However, it is likely a conveyancer will already be alert to this due to the issues raised by a lender.

Secondly in order to initiate the process and to be in a position to serve a notice, the tenant must have owned the lease for at least two years. Where leases are in danger of going below 80 years, it is common to find a tenant to serve the notice and then assign the benefit of it simultaneously with the lease on sale. This allows a buyer of the flat to take advantage of the right to a new lease under the Leasehold Reform Housing and Urban Development Act 1993. The assignment needs to be correct failing which it will not be effective and could leave a new buyer having to wait two years before they acquire the right to extend their lease. This could be devastating especially if at that time the lease falls below 80 years and marriage value is payable making a lease extension more expensive.

Section 42 Notice

The Section 42 notice must be correctly prepared and served on the competent landlord. Further, a copy of the notice must also be given to the intermediate landlord. Failure to serve a valid notice could be an expensive mistake as the initial notice will be deemed withdrawn and the leaseholder has to pay the landlord’s reasonable legal and valuation costs up to the date of withdrawal. Further, the tenant cannot re-serve another notice for 12 months.,  In some circumstances, the leaseholder may simply serve another notice without withdrawing the first. This is because their first, invalid, notice would be treated as a nullity and would not, therefore, need to be withdrawn before another notice was served. The 12 months would not apply in that case and the new notice could be served straight away. However, the tenant cannot escape paying the liability for the landlord’s reasonable costs for having to deal with the notice though.

Registration of notice

It is also important once a notice has been served that it is registered as once it is served it is registrable against the title to the freehold and any other intermediate interests as a land charge or notice. The initial notice will not be binding on future owners if it has not been registered. This could have consequences on a tenant if the freehold property is sold before a tenant’s claim is concluded. Ultimately, the tenant would have to start again and if the lease has been assigned in the intervening period the new tenant will have to wait two years to enable it to serve a notice of its own right  There is of course, also the damage that the lease falls below 80 years so the lease extension becomes much more expensive.

Counter-notice

Once the notice is served the landlord will have to serve a counter notice by the date stated in the notice. Here solicitors acting for the landlord will need to be careful as failure to serve a valid counter notice by the date specified in the initial notice allows the tenant to apply to the court for an order granting it the new lease on the terms the tenant proposed in the initial notice.  Once the counter notice is served the parties have between two and six months to come to an agreement. After the first two months of negotiation either party may apply to the tribunal for a decision on the disputed issue which is usually the premium.

Application to the Tribunal

If the tenant fails to apply to the tribunal within 6 months of the date of the counter-notice, the tenant’s claim for a new lease will be deemed withdrawn and it will have to wait to serve a further notice.

Completion of the New Lease

Thereafter once the terms of the acquisition have been agreed between the parties or where such terms have not been agreed between the parties but have been determined by the Tribunal, the lease must be completed within two months of that date known as “ the appropriate period”. If the lease has not been entered into by the end of this period either party can make an application to the county court for an order either to:

• Perform the obligations arising from the initial notice ;
• Be discharged from the obligations arising from the initial notice,

The application to the court must be made in the period starting with the end of the appropriate period and ending two months thereafter. If no court application is made within this time frame and the lease has not been completed, the tenant’s notice of claim will be deemed withdrawn and the tenant cannot make another application for a new lease during a period of 12 months from the date of withdrawal

Beware of the pitfalls when applying or opposing the grant of an extended lease as it could have disastrous consequences for a tenant or landlord if it is not done properly or if any of the time limits are not met.