Leasehold Extension: Obligation to extend has lapsed?

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    Leasehold Extension: Obligation to extend has lapsed?

    Hello all,

    Background: I have a share in the freehold-owning company for the converted building in which I and a couple of other leaseholders reside. Essentially, it falls to me to run things. The only leaseholder who is does not own a share of the company applied for a lease extension through the statutory process (77 years left), and we agreed a premium on 31st Oct (at a value that I felt to be low, but accepted in the interests of avoiding tribunal). It is clear that he had to initiate this process as a condition of selling his property.

    Question #1: The lease has not been extended to date, and no court application has been made to force things through (we have not held things up our end). As I understand it therefore, the application is considered withdrawn, and we are under no obligation to extend (2 months to complete and a further 2 for the court order having since passed). In order to force an extension, the leaseholder would have to serve another section 42 notice. Am I correct in saying this? The premium has now been locked in for some time, and I think a higher one could now be achieved.

    Question #2: During the premium negotiation, the leaseholders solicitors initially denied liability for our valuation/surveyor fees (which are certainly not unreasonable), but later conceded that they would be paid on completion. I would guess that normally the extension be completed in good time and the payment to the surveyor would be made at that point. However, as some time has elapsed, the surveyor is now chasing us for payment. I am inclined to pay up as although the fees are recoverable from the leaseholder (even if the lease is not extended), it is our obligation to pay in the first instance. Am I correct in saying this? Further, if the property is sold without an extension, are the costs recoverable from the new leaseholder via the deed of covenant (in the same way as the service charge)?

    At this point I do feel the need to defend ourselves against the (understandable) assumption that we're the sort of freeholder that is engaging in a money-making exercise. For example, we have not charged this leaseholder a penny in management fees over the years (resulting in his service charge normally being just c£200-300), and yet recently he tried to royally shaft us by erroneously claiming that his buyers had agreed to pay a large service charge relating to some external repair works (and his solicitors were complicit in this lie). I could go on, but the point is that I am very keen to see that he does not manage to shirk any more responsibilities.

    Appreciate any assistance/comments.



    #2
    On Q2 last part - I think the answer has to be no. Such fees, if payable, are payable by the leaseholder to the freeholder in respect of changes to a contract. They have absolutely nothing to do with service charges payable under the lease (which are not payments made to the freeholder at all albeit the freeholder might administer those funds)

    But honestly -- why not just let him extend at some reasonable premium. If you make it impossible for him you will end up with a brothel or a neighbour from hell on your doorsteps. You seem to be making a meal over a matter of weeks.

    Comment


      #3
      Yes, you are correct in your thinking on question 1 and you are partially correct in your thinking on question 2. The part that you have correct on question 2 is that you are expected to pay the surveyor what is due even before recovering the cost from the leaseholder. No, you cannot extract this cost from the purchaser of the flat should the flat be sold without a lease extension. At such juncture, you could instead refuse to assign the lease until the present leaseholder reimburses you the surveying costs.

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        #4
        The wooden windows and doors outside the building need repainting every 4-5 years and drain pipes and boundary fences need repairing , so you should be collecting the part contribution every year and holding in a reserve fund for such expenditure.

        Yes, You are being shafted if he hasn't paid any contribution and trying to take advantage of you.

        Comment


          #5
          Originally posted by Gordon999 View Post
          The wooden windows and doors outside the building need repainting every 4-5 years and drain pipes and boundary fences need repairing , so you should be collecting the part contribution every year and holding in a reserve fund for such expenditure.
          Only if the lease provides for a reserve fund.

          Comment


            #6
            Thanks for the responses.

            As I understand it therefore, we would not be able to recover these costs from the new leaseholder. And they are part of the service charge.

            From his previous actions, I have no doubt that the current leaseholder would seek to avoid paying these costs if he could get away with it. So there is a risk that the sale of the property could occur without a lease extension, and in that scenario the costs would be practically irrecoverable. Further, it seems to me that his refusal to date to pay the costs could only be advantageous to him if this was his intention.

            AndrewDod, he has had ample opportunity over the past 5 months to extend at a reasonable premium. I can only presume he wanted to game the situation by locking in a lower premium for as long as possible. If this is our legal entitlement, then I think it is our moral entitlement, given the way he has treated us over the years (including not meeting his legal obligations). I also can't make this decision alone, and need to understand the situation so I can put the question to the other directors. Personally, I am open to be persuaded however.

            Comment


              #7
              No it is not "part of the service charge". It has nothing at all to do with the service charge.

              I am no expert on lease extensions but two things need clarifying:

              You refer to some sort of advantage the opponent has obtained via protracted "locking in". Ultimately the only locking in is via proceeding with the transaction. I cannot see what advantage is accrued. He might have been dumb, but advantage?

              Also you state proudly that you have not charged him management fees. Three lessees who happen to own the freeholder cannot charge management fees to the 4th lessee unless you have a highly unusual lease (although they can charge fees of an actual manager, in which case all 4 lessees would have to be paying those fees). So you have done him no favour by not charging for your time.

              Comment


                #8
                If you are charging management fees, you are providing property management services for gain and must belong to a redress scheme or risk a large fine from trading standards. Ordinary self managers don't need to do this because they don't charge for their services.

                Comment


                  #9
                  AndrewDod,

                  Apologies, the sentence should have read "not part of the service charge".

                  I was using "not charged him management fees" as shorthand for "doing the all the work that allows him not to pay any management fees", as I wanted to avoid getting into detail.

                  On that point, his lease states the the service charge includes "all other costs and expenses reasonably incurred by the Landlord in connection with the Building (including the management thereof) and the reasonable fees of any managing agent". So, why would this not apply? Obviously all lessees would pay those fees, as they currently do the service charge.

                  Regarding a redress scheme I understood that Landlords are "not generally covered by the definitions as they are not acting on instructions from someone else" (LEASE), and are not carrying out management as a "course of business". In any event, surely the freeholder can contract out services as they see fit - so could effectively pay myself for (e.g.) cutting the hedge on behalf of the building.

                  I did charge £50 (in total) for 2 LPE01 forms and deed of covenant, but I don't think this counts as a management charge here? I have read stories of leaseholders being charged over £500 for these services.

                  So I am more than comfortable that we have saved this leaseholder many thousands of pounds over the years through out hard work.

                  Anyway, perhaps I'm protesting too much and this is going off-track from the original questions.

                  #1 I believe that (in addition to their written agreement), the leaseholder is liable in a statutory sense for the freeholder's valuation costs, and we should not have to wait until lease extension (which may never happen - they have had 5 months to do so) to be reimbursed. Would I have to apply to the tribunal to recover these?

                  #2 The fair premium for extension will normally increase over time as the relativity will decrease much faster than the PV of ground rents decreases (if at all). This is in addition to any house price inflation. As such, locking in a valuation date (of nearly a year prior), only to complete much later is to his advantage and to our disadvantage.

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