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When are the terms of a lease extension agreed and so how long do you have to complete your new Lease?

Wed 19 Oct 2016

Flat owners exercising their right to a new lease may need to plan their finances to synchronise with the point at which they will need to come up with the completion monies to complete the new lease in time.

The governing legislation (the Leasehold Reform, Housing and Urban Development Act 1993, as amended by the Housing Act 1996 and the Commonhold and Leasehold Reform Act 2002) contains a timetable and the ability to refer the points in dispute for determination so that the right can be taken up successfully.

A flat owner initiates their claim by giving a statutory form of notice to their landlord setting out their proposals for the new lease and the time within which the landlord must respond with its counter-proposals.  That response period must be at least two months plus a safety margin for service.

Once the landlord gives its “counter-notice” containing those counter-proposals, either party is then free to apply to the relevant Tribunal to determine any issue that remains in dispute during a window that starts two months from receipt of the landlord’s counter-notice that closes four months later.

Once terms have been agreed between the parties a completion timetable comes into play with a deadline for one party to apply to Court to force the other to complete.  So it is important for the parties to know what the terms in dispute are

and when the last of them have been agreed.  They are known as the “terms of acquisition”.  If, for example, the tenant gets this wrong and fails to apply to Court in time, then they would be deemed to have withdrawn their claim with potentially disastrous consequences. First, they would have wasted the costs they had incurred in connection with the dead claim.  Secondly, they would be liable for the landlord’s reasonable costs incurred in that connection.  Thirdly, they would have to wait for 12 months to pass from the point of deemed withdrawal before they could make a fresh claim and that might be elongated if they had taken over the benefit of a claim initiated by the Seller of the flat (in that case they would have to wait for 2 years of ownership to accrue in their name before they could first make a claim) and by that time the premium payable for a new lease may be significantly higher.  So there is a lot to play for.

A recent case has clarified what the terms of acquisition are and when they are agreed; Green Pine Investment Holding Limited v Howard de Walden Estate Limited (2016) EWHC 1923 (CH).

When are the terms of acquisition agreed?

The terms of acquisition that need to be agreed are the differences between the proposals made in the tenant’s initial notice and the landlord’s counter-notice. A number of points have been clarified and reaffirmed in this regard; once these terms are agreed (or determined by the Tribunal) then it is not possible for new terms of acquisition to be raised; agreed means finally and unconditionally agreed, but the parties do not need to have gone as far as entering into a binding contract.  It does not mean settling the drafting of the new lease and agreeing how it will be completed where those points are not in contention between the notices.

Can the parties agree other terms of acquisition after the counter-notice has been given by the Landlord?

The position is not certain but it appears that they cannot “if the parties can agree something beyond the statutory scheme, then it may well be possible for an estoppel or waiver to arise in connection with such matters…” (paragraph 38).  In this case it was found that insofar as it was possible for the party’s agreement that the offshore corporate tenant provide a supporting document evidencing its existence, capacity to enter into the new lease and validity of its execution of the same to constitute a term of acquisition then it was agreed at the heads of terms stage as opposed to when every dot and comma of the supporting document was agreed. Consequently the tenant’s claim failed.

The lesson for tenants is that they must make their application to court in good time based from when the terms of acquisition as opposed to the precise terms of the lease are agreed. If they need to manage the timing of funds to coordinate it with completion, then they need to be careful to hold off agreeing a terms of acquisition, insofar as they can considering the statutory deadlines, to a point where the dates will tie in sufficiently and even then it is not possible to be as precis as they might like as to timing; the landlord may cut down the completion period to three weeks by notice.

Both parties should give consideration to approaching negotiations as to the premium, form of lease and costs as a package so that nothing is agreed until everything is agreed where that is beneficial to them.  This will usually be the case for the landlord, but it may also work in the tenant’s favour if they were left in a poor negotiating position on some points if they agree others

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