Extending your lease is your statutory right – and generally one that can’t be taken from you.
Sometimes potential clients ask us whether an outstanding dispute means that their freeholder can reject their statutory lease extension claim.
This might be because they have dispute over whether or not they have breached their lease, or they have service charge arrears.
The short answer to this question is frequently "No" – your freeholder can’t reject your Section 42 Notice and your lease extension claim just because there is an unresolved issue.
However, it is not as simple as this. Even if they can't reject the claim outright, the issue may well delay or complicate the claim. It frequently is not advisable to start a lease extension claim when you have a pre-existing issue or dispute.
This article explains the effect of various issues on the lease extension process.
Service Charge Arrears:
Section 56(3) of the Leasehold Reform Housing and Urban Development Act 1993 states that your freeholder does not have to complete the lease extension transaction until they’ve been ‘tendered’ (i.e. paid) any sums due to them.
Usually this will include any unpaid ground rent, service charge or major works arrears.
If you’re behind on your service charge, or you’re expecting a big bill that you can’t pay, it may be worth holding off with your lease extension until you're back in the black.
Want to pay now and argue later? If you do not want to delay your lease extension, you could chose to pay the service charge arrears upfront now - but just make it very clear to your freeholder that you are paying them without admission of liability, so you can challenge them later. Once the lease extension is complete, you can revisit the conversation with your freeholder and if need be make a tribunal application. If you're intending on doing this, you should satisfy yourself of both how to adequately reserve your rights and challenge the disputed amounts.
Agreed a payment plan? Often if you’ve agreed a formal payment plan with your freeholder, they’ll honour this – but not always! Sometimes they want the full sum paid ahead of completion anyway.
If you’re paying your service charges or major works bill on a payment plan, you should satisfy yourself before you start a lease extension that your freeholder won't demand the balance on completion. You might want to get them to confirm this in writing. Alternatively, you could make sure you have the funds to pay it if they do.
Breach of the Lease:
If you have breached your lease, it is possible that your freeholder won’t agree to continue your lease extension claim until you’ve rectified the breach.
A common example is if you’ve altered the flat without permission.
Your freeholder may either fail to complete the transaction or only agree to overlook or resolve the breach if you pay a higher lease extension premium. Even if there is no legitimate basis for them doing these things, you may be forced to choose between paying a higher price than you think is fair or engaging in pricey litigation to resolve the issue.
Other disputes:
We genuinely once had a freeholder say that he would not grant our client a lease extension until they returned his “two wooden fish” – his possessions that had apparently been left in the flat when it was originally leased but were never returned.
This seemed like a bizarre request, and certainly this was unlikely to be a legal basis to prevent a lease extension.
However, if you do have an ongoing dispute with your freeholder – legitimate or not – it is unlikely to be conducive to them agreeing to a fair price or facilitating a smooth lease extension process!
Can't a freeholder do the lease extension and deal with the breach later?
You'd be forgiven for thinking that your freeholder might be persuaded to treat the lease extension and the breach as two separate issues - and complete the lease extension and deal with the breach after.
They will often refuse to do this is because a lease extension technically "surrenders" (i.e. cancels out) the old lease and grants a new lease for the new and longer term.
In certain circumstances this means that a freeholder's position is weakened by a lease extension, if the tenant can argue that a breach or dispute related to the old lease not the new extended one.
Conclusion:
We do not recommend starting a lease extension until you have resolved any other issues or disputes. It is rarely worth the extra headache.
Even if your freeholder does not have a legal basis to frustrate your lease extension claim, you may end up having to engage in costly litigation at tribunal or court to compel them to do so.
That said, there are a few circumstances (see below) where you may choose to press ahead with a lease extension even if you have a dispute or the potential for one. However, you must let us (or whoever you choose for your lease extension) know before you get started.
You’ve been advised to do so by a litigation solicitor: In certain cases, serving a Section 42 notice and starting a lease extension can prevent your freeholder from starting forfeiture proceedings. The provisions and case law relating to this are complex and you should always take the advice of a property litigation solicitor if you are concerned about forfeiture.
You've made a minor alteration - and your lease plan is not sufficiently detailed to show it: Most leases have a plan of the flat in them. Some are detailed (showing walls, doors, etc) and some are very basic. If you've made an alteration that you should have got permission for and the lease plan isn't sufficiently detailed to show it, you could press on with the lease extension process and hope your freeholder doesn't notice. Once the lease extension completes, your position could be strengthened (see the "Can't a freeholder do the lease extension and deal with the breach later?" section) - but this is a risk only you can decide to take!
Your flat is close to the 80 year mark: As soon as your lease drops below 80 years, it suddenly gets more expensive to extend the lease. If you’re approaching this mark, you might think it is worth serving the Section 42 notice to “lock in” the valuation date and aim to get the issue or dispute resolved during the process.
Want to pay the lowest price for your lease extension?
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