Lease Extension Negotiations

After the landlord has served the counter notice, the respective valuers of the landlord and the tenant will usually open negotiations over the premium amount.

If a compromise cannot be achieved, the landlord or the tenant may apply to the First Tier Tribunal (FTT) to determine the premium amount or other contested terms of the new lease. So there is time to reach an agreement without court interference, however, they must wait two months from the date of the counter notice before lodging an application.

The subject of the negotiations is defined as the differential between the terms in the tenant’s offer notice and those in the landlord’s counter notice.

The landlord is only required to provide the draft lease to your solicitor once these principle terms have been agreed between the surveyors. This is due to Section 7(1) of the Leasehold Reform (Collective Enfranchisement and Lease Renewal) Regulations 1993:

7. (1) The landlord shall prepare a draft lease and give it to the tenant within the period of fourteen days beginning with the date the terms of acquisition are agreed or determined by a leasehold valuation tribunal.

Section 57 of the 1993 Act defines what terms the landlord may add to the lease. While the the lease should generally remain the same as the existing lease – except for the addition of 90 years and the reduction of ground rent to a peppercorn – Section 57 does give scope for remedying defects and to modernising the lease.

As the tenant it is in your interest to limit the scope of these additions to the lease, while the landlord will probably try to insert clauses which are onerous on you. It’s important for your representatives to be able to ascertain what can or cannot be justified under the legislation. If the parties can’t agree, either side may seek a determination from the FTT.

You have six months from the date of the counter notice to reach an agreement or to apply to the FTT. As you can’t apply to the tribunal for the first two months after the counter notice, you effectively have a four month window to take your case to the tribunal.

If you miss this deadline your claim is deemed withdrawn. You will still be liable for the landlord’s costs and you will have to wait 12 months from the date the offer notice was deemed withdrawn before being able to issue a new notice.

In essence this means that the premium and all other terms of the lease must be agreed ahead of time. If it doesn’t look like an agreement will be reached in time, it is advisable to apply to the FTT in order to protect your right to carry on with the claim.