A comment on the costs of extending a residential lease

The lease premium is not the only cost payable by a tenant who wishes to extend its lease pursuant to the Leasehold Reform, Housing and Urban Development Act 1993 (“the Act”) and these costs can be significant. It is prudent to obtain estimates from professionals instructed (more often than not solicitors and surveyors) before deciding to proceed.

After the service of the notice of claim, the serving tenant shall be liable for the costs of the landlord arising from that notice for the following:

1. The investigation to determine that the tenant had the right to serve the notice of claim;

2. The valuation of the property for the purpose of fixing the premium payable for the grant of the new lease; and

3. The actual grant of the new lease.

Any costs incurred by a landlord (but payable by the tenant) shall only be regarded as reasonable if those costs could reasonably be expected to have been incurred by the landlord in the event that he was personally liable for those costs.

If the tenant’s notice is withdrawn (for whatever reason) then the tenant’s liability is limited to those costs incurred down to that time.

The tenant is not liable for any costs which professionals acting for a landlord or any other party to proceedings under the Act incur by attending a leasehold valuation tribunal.

A landlord must consider, before instructing a surveyor to carry out negotiations as to the final premium, that it is not entitled to recover the cost of doing so from the tenant. Nor may the landlord recover the professional costs of its solicitor/surveyor attending a leasehold valuation tribunal on its behalf. Whether or not the landlord choses to instruct its appointed professionals in these two instances will likely depend on the level of the premium at stake. If there is a worthy difference between the premium proposed by the tenant and that given by the landlord in its counter notice, the landlord may feel that it is worthwhile incurring irrecoverable costs to ensure that an informed professional is instructed to make representations on its behalf to protect its position.

A tenant may wish to limit its costs liability by querying and seeking evidence of the validity of a landlord’s claim for costs. This may involve requesting a breakdown of the landlord’s costs and checking that they were incurred pursuant to stages 1-3 above. However, it is worth bearing in mind that the costs of such a challenge would incur the time of a tenant’s own professionals and drive up a tenant’s own costs. Additionally, since costs are primarily concluded prior to completion of the lease, any challenge risks delaying completion within the statutory time limit.

For further information regarding this topic or any other property and construction matter, please contact the Edwin Coe Property team.

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