Lease Extensions: Landlord Counter Notice and Lease Terms
Once the landlord has received the notice he may want to:
- Request additional information;
- Inspect the original lease,
- Inspect the flat for the purpose of carrying out his own valuation which is highly recommended.
These (and any other requests) must be requested within 21 days of the date of the notice.The leaseholder must also in turn respond to any of these requests within 21 days.
The solicitor acting for the freeholder will obtain official copy entries of the leasehold title to the said property and will advise on the content of the notice. He/she will also check that the particulars of the lease are the same as those held by the Land Registry.
One such notice we had came from a family member of the lessee, who’s husband was deceased. The property was held in the name of the joint tenants and where the title automatically passed to the widow. Along with the Initial Notice of Claim came a copy of the death certificate and a copy of the grant of probate, leaving the widow the qualifying tenant for the purpose of serving the statutory notice.
The counter notice is now served by the freeholder on the leaseholder (or the leaseholders appointed representative) on the date specified in the Notice of Claim. It is most likely that the figure in the tenant’s Notice is an ‘opening shot’ (although it must be realistic) with room left for negotiation.
In the counter notice the freeholder must:
- Acknowledge that the leaseholder has the right to a 90-year lease extension and specifying which proposals in the Notice of Claim are accepted, which are not accepted, and in relation to those which are not accepted, the freeholders counter-proposals;
- Acknowledge that the leaseholder has the right to a 90-year lease extension but states a counter offer in respect of the premium payable for a new lease;
- Denies that the leaseholder has a right to a 90-year lease extension (however there are very few grounds for denial).
If the counter-notice containing the higher price is not served on or before the date specified in the Notice of Claim the leaseholder has the right to acquire a new lease on his terms by applying to the County Court and asking for a ‘Vesting Order’ by which the court declares that the landlord must sell the lease extension at the offer price made by the leaseholder.
The terms of a statutory lease extension are as follows:
- To be at a peppercorn ground rent for the entirety of the term of the new lease (i.e. the added 90 years plus the present unexpired term). When the landlord does not receive an annual payment in cash, ground rent is an acknowledgement of the existence of the lease.
- To be on the same terms as the existing lease, subject to minor changes and certain statutory exclusions and additions.
(i) Modifications – to take account of any alterations to the flat, or the building, since the grant of the existing leases (e.g. reference to gas lighting or coal stores), or to remedy a defect in the lease.
(ii) Exclusions – since the Act provides a right to perpetual renewal of the lease, any existing clauses relating to renewal, pre-emption or early termination are to be excluded.
(iii) Additions – a requirement not to grant a sublease of sufficient length as to confer on the sublessee on the right to a new lease under the Act.
- The landlord’s redevelopment right – the new lease must also contain a clause giving the landlord the right to repossession of the flat for the purposes of redevelopment. This right does not arise until the end of the term of the existing lease and is subject to a court application and the payment of full compensation to the leaseholder for the full value of the remaining 90 years. This does not however cause any difficulties in mortgaging the flat.
Following the service of the Counter Notice, the two sets of valuers will negotiate and (hopefully) agree the premium, subject to instructions.
In the meantime the freeholder can also demand a deposit from the leaseholder which is calculated as a percentage of the offer price that is contained in the leaseholders notice. 10% or £250 may be demanded, whichever is the higher figure.