Residential lease extensions – when are court proceedings needed?

Leasehold property ownership is a common form of ownership in England and Wales, particularly for flats. A leaseholder will own a property under the terms of a lease that will run for a set period – commonly 99 – 125 years.

As the number of years on the lease decreases significantly, the property’s value can lower and obtaining a mortgage for leasehold properties with a shorter number of years can be difficult for prospective buyers. The Leasehold Reform, Housing and Urban Development Act 1993 (the “1993 Act”) grants leaseholders the right to extend their lease by an additional 90 years at a “peppercorn rent” (effectively zero ground rent).

The procedure and subject of residential lease extensions under the 1993 act was helpfully explained and covered in detail by Hanne & Co’s property team here.

Hanne & Co has subsequently published news on ‘The Leasehold and Freehold Reform Act 2024’. This new Act intends to introduce reforms to the extension of leasehold properties.

The Act is yet to published and we don’t know exactly when the reforms relating to residential lease extensions will be implemented.

For an understanding of the current situation concerning this Act and the intended reforms to lease extensions, Hanne & Co’s Property solicitor Steven Bannell provides an important update in his article here.

Until such time that the changes to residential lease extensions are implemented under the new Act, the current procedure for extending your lease still falls under the 1993 Act. In our guide to extending your lease under the 1993 Act, we explained the formal and informal method for extending your lease.

Under the formal procedure an eligible leaseholder will serve a notice to the freeholder under Section 42 of the 1993 Act. The notice will set out the proposed terms of a new lease, the premium the leaseholder proposes to pay to the landlord and the date by which a counter notice must be served by a landlord in response.

The landlord is required to serve a counter notice within a strict deadline to either admit the claim for a new lease, not admit the claim or refuse to grant a new lease on grounds of redevelopment. In this article, we consider when involvement of either the Court or First-Tier Tribunal (Property Chamber) is needed to assist leaseholders with finalising the extension of their lease.

The most common reason for court involvement is the inability of the leaseholder and freeholder to agree on the terms of the lease extension – such as agreement over the premium payable for extending the lease.

If negotiations over the premium fail, either party can apply to the First-Tier Tribunal (Property Chamber) to determine the premium or any other fundamental terms the parties cannot agree on, at a tribunal hearing. An application must be made no later than 6 months from the date of the freeholder’s counter notice.

When a notice of claim for a new lease is served on a freeholder, a counter-notice must be served in response by a strict deadline of at least 2 months. If there is no response, an application can be made to Court to for an Order granting the new lease on the terms proposed by the leaseholder in their notice of claim. This application must be made within 6 months from the date the counter notice should have been served. If completion of the lease is not finalised by either party after the granting of this order, either party can make another Court application to enforce the other parties’ obligations to complete the lease.

If a counter-notice is served in response to the leaseholder’s claim that proposes additional terms or a higher premium amount, the leaseholder has six months from the when the counter notice was served to apply to the Tribunal if there is a dispute over the premium or other terms. If this deadline is missed, the leaseholder’s claim is deemed to be withdrawn, and they must wait 12 months before making another claim.

If a freeholder serves a counter-notice not admitting the claim (on grounds the leaseholder is not entitled to an extension of their lease, or grounds of redevelopment), a court application, to declare the tenant does not have the right to a new lease when their notice of claim was served, must be made by the freeholder within two months of the notice of claim.

Once a leaseholder serves a notice of claim, they become liable for the freeholder’s reasonable legal costs incidental to the notice. If these costs are not agreed, an application to the Tribunal can be made to determine the costs payable by the leaseholder.

While many lease extensions are resolved without the need for court involvement, disputes over terms, compliance with deadlines and time limits do lead to court proceedings under the 1993 Act.

For advice on any aspect of residential lease extensions or assistance with the court proceedings that are needed, Hanne & Co’s Property Litigation and Dispute Resolution departments are available to assist you. Contact Hanne & Co on 020 7228 0017 or email us at info@hanne.co.uk to start receiving help today.