With more and more leasehold bloggers popping up and writing about recent case law, I thought I would try and be inventive and write about something that I have recent experience of instead.
When extending a lease under the Leasehold Reform Housing and Urban Development Act 1993 (“the Act”), it is common knowledge that as well as paying the landlord a premium, the tenant will also be responsible for the landlord’s reasonable costs of:
(a) any investigation reasonably undertaken of the tenant’s right to a new lease;
(b) any valuation of the tenant’s flat obtained for the purpose of fixing the premium or any other amount payable by virtue of Schedule 13 of the Act in connection with the grant of a new lease under section 56;
(c) the grant of a new lease under that section;
Exactly how much these costs should be are generally a matter of negotiation or determination by the Leasehold Valuation Tribunal in default of agreement. Parties tend to spend most of their negotiating efforts on the premium payable and leave costs until the end.
Costs can therefore be an after thought and once the premium is agreed the costs of making an LVT application to determine them can be prohibitive. the costs charged by a solicitor to make an application to the LVT to determine costs and to then administer that application can be more than the difference in what would properly be payable after a determination and what the landlord is seeking. Solicitors acting for landlords know this and that is why landlord’s costs tend to exceed what the tenant is paying even though the work involved is largely the same.
This operates to create an imbalance in the parties relative negotiating positions and because costs don’t need to be agreed before completion takes place the tenant can be called upon to provide reasonable security for all of the landlords costs under section 56 (3) of the Act if it wants to complete the lease extension. In practice, once those costs have been paid over the appetite for the tenant to spend the time and effort in challenging the landlord’s costs diminishes.
The lesson for tenants is to seek agreement on costs promptly and think commercially about a landlords offer.
* apologies for the paucity of blog posts lately, holidays have put me a bit behind!