Provided that a tenant satisfies the qualifying criteria under the legislation, the right to purchase the freehold can be exercised under a prescribed procedure.
Once the tenant initiates the process, it creates a ‘statutory contract’ between the parties. Under such contact, the tenant is bound to purchase the freehold and the landlord is bound to sell it.
The landlord will not be able to pursue forfeiture proceedings once that statutory contract is in place, and any ongoing contract between the landlord and a third party for the sale, lease or disposal of the whole or part of the house and premises included in the claim will be treated as automatically discharged; this is in the event that the tenant’s claim is valid and effective, and where the contract with the third party makes no provision to cater for the scenario of the tenant initiating a statutory claim to purchase their freehold.
It is important therefore that the landlord ensures that it takes advice as to the implications of any attempt by the tenant to purchase the freehold of their house via the formal route.
Given the implications of the tenants claim, it is imperative the process is followed correctly and the landlord does not prejudice their position.
Voluntary or Informal Route
Landlords will be aware that the purchase of the freehold can alternatively proceed outside of the statutory route via a voluntary or ‘informal’ route. The voluntary process has benefits for both a landlord and tenant, but traditionally they are weighted in favour of a landlord in that:
- Leaseholders do not have the benefit of the various protections afforded by the legislation under a statutory claim
- If the leaseholder has brought a claim that is invalid or is ineligible to purchase the freehold, a landlord can still offer to sell the freehold if it wishes to avail itself of the opportunity to obtain a premium from the sale
- The process is premised on voluntary and free negotiations which means that either party can withdraw at any time without ramifications and there are no timescales, steps or restrictions that must be adhered to
- Landlords can invariably seek a higher premium that would otherwise be unavailable under the controls of the statutory route in that premium negotiations take place on the open market, but much depends on the negotiating power and resolve of the parties
- Overall, landlords can be in a better negotiating position, not just in respect of the premium but also regarding the overall terms of the conveyance of the freehold. At the end of the day, it is the tenant who is seeking a new lease and the landlord is under no duty to provide one
We can provide advice in respect of both voluntary and statutory claims, and undertake all work necessary under both routes. It is important to seek expert legal advice in both instances.
What is the process involved?
Please click on our flowchart that sets out the basic steps involved in the statutory lease extension process.
What will it cost me?
Our charges are estimated to be in the region of £1,800 pus VAT plus disbursements. We have partnered with a two surveyors firms, LeaseX Limited and Hortons Valuers Limited who’s fees are in the region of £600 - £1,000 plus VAT. It is important to understand that you are under no obligation to instruct either of those firms and are free to instruct a valuer of your choosing.
Under the legislation, the tenant will be liable for the landlord’s costs that it incurs in connection with the claim from the date the notice of claim is served, whether or not the purchase completes. Such costs are recovered by the landlord at the time that the conveyance of the freehold completes and includes:
- Investigation into the tenants right to purchase their freehold
- The valuation of the interest of the premises
- The conveyance of the freehold interest
Ultimately, the costs payable to PDC Conveyancing will be contingent on what can be recovered from the tenant and we will not seek to recover any shortfall in that recovery outside of limited circumstances (i.e. where you do not reasonably cooperate with us in the conduct of your response to the claim), should those costs be reduced via negotiation or via determination by the First-Tier Tribunal (Property Chamber).
If you are a landlord and interested in learning more then please contact our Dominic Cassidy of our Business Development Team for further information: firstname.lastname@example.org