When you extend your lease or purchase your freehold you must pay a premium (a price) to your freeholder.
If you can’t agree a premium with your freeholder, you can apply to the First Tier Tribunal to decide what it should be.
Many leaseholders ask us if going to tribunal is likely to be required in their case. It isn't - even if you have one of the notorious private freeholders they are likely to want to settle rather than incur the costs of a tribunal hearing.
When should you go to tribunal?
The premium for a lease extension is calculated by using several input figures. Examples include the value of your flat once the lease is extended, what it is worth now, the length of your lease and how much ground rent you pay.
It is quite rare to need to go to the First Tier Tribunal for lease extension claims, this is because there is rarely any genuine dispute on those figures. Usually, the only dispute is that the freeholder simply wants more money than they are entitled to.
For example, we recently had a case where the freeholder made a “best and final offer” of £10,000 – which valued the flat at £400,000. The flat clearly wasn’t worth £400,000: three identical properties in the block had just sold for £300,000. Our client wanted to go to tribunal, and the freeholder quickly backed down.
In our view, you should only go to tribunal if either:
There is a big dispute – i.e., there is a genuine difference in opinion on one of the input figures which results in a difference of many thousands of pounds or
There is no dispute – the evidence is clear, but the freeholder is refusing to negotiate or compromise.
When shouldn't you go to tribunal?
Sometimes we have cases where it is very hard to decide what the correct premium should be.
This might be because there is either a lack of evidence or the evidence available is inconsistent. In these cases, it makes much more sense to compromise and reach a settlement than run the risk of going to tribunal.
For example, if your flat backs on to a railway line, it will clearly be worth less than a flat which does not. However, this point is quite subjective – how much less? If you haven’t got solid evidence on how much the railway devalues your flat, it may be better to compromise with the freeholder than try your argument at tribunal.
Equally, you need to consider whether it is worth going to tribunal – because the cost can be significant.
What's the process?
Step 1: Make an application: Your solicitor or project manager can make an application to tribunal – they need to fill out a form and preparing a bundle of documents. These can then be emailed to the relevant regional tribunal and a copy of them sent to your freeholder too. The tribunal service charge £100 for taking an application.
Step 2: Tribunal issues directions: The tribunal service will issue a set of directions – which is a list of deadlines for certain tasks to be completed. At the point the tribunal sets a date for the hearing, a second charge of £200 is due.
Step 3: Exchange calculations: One of the directions will be that the valuers working on behalf of the leaseholder and freeholder must exchange their calculations – which shows what they agree on and what they do not.
Step 4: Exchange valuation reports: The valuers exchange reports which are very detailed and granular and provide evidence to support their calculations. These reports often run into the thousands of words with tens or even hundreds of pages of supporting evidence. They are very time-consuming to produce.
Step 5: Negotiate further: Once the expert witness reports have been exchanged you can see exactly what evidence the freeholder has got and how prepared they are. At Homehold we see this as the point in the tribunal proceedings to try and reach a settlement.
Step 6: Issue the final bundle: It is the responsibility of the leaseholder to produce the case bundle, which is a single .pdf document with all the information and evidence in it.
Step 7: Attend hearing: Most cases where the premium is in dispute are determined at a hearing. Historically these take place in person, although during Coronavirus these have been video hearings over a system which is a bit like Teams or Zoom.
Step 8: Receive decision: The tribunal will issue a written decision explaining the premium they have determined and why. They will usually provide this within six weeks of the hearing date – but we did have one case where we had to chase them at the six-week mark, and the decision came back a few days later.
What happens at the hearing?
At most hearings it is the valuer for each party who represents each party.
Leaseholder’s opening statement: It is the responsibility of the leaseholder’s valuer to lay out their case for why they think a particular premium should be paid – this is called an opening statement. Either they are instructed by the tribunal to lay out their entire case, or start by presenting evidence on just one of the issues in dispute.
The freeholder cross examines: The freeholder’s valuer then gets to ask questions of the leaseholder’s – to try and undermine their case. Usually, these questions are based on statements or opinions given in the leaseholder’s valuation report. Sometimes the tribunal members will also ask questions.
The roles are reversed: It is then the turn of the freeholder’s valuer to give their own evidence, and then the leaseholder’s valuer ask them questions.
Go again: If only a part of the case was presented, then the tribunal will ask the leaseholder to present the next issue in dispute. This continues until both sides have given evidence and had an opportunity to cross examine on every point in dispute.
Closing Statements / Summing Up: Once both parties have had an opportunity to present each issue in dispute, they have a chance to summarise their case and any final thoughts. Again, the leaseholder’s valuer goes first, so the freeholder’s valuer has the final word.
Below are a few suggestions of how to give yourself the best chance that the decision goes your way!
Avoid an application - if possible
Lot's of freeholders won't really get to the negotiating table until an application to tribunal is made - it is no skin off their nose!
To counter-act this, at Homehold we make it clear to the freeholder before we make an application that if they force us down that route, we won’t negotiate again until valuation reports have been exchanged.
We employ this strategy to ensure that if our client must go to the expense of making an application then the freeholder must incur a significant expense too.
The freeholder is unlikely to want to do this unless there is a genuine dispute.
Don't miss the deadline
You must make an application within six months of the date your freeholder served their counter-notice.
Usually we like to ensure that we start thinking about tribunal no later than the five-month mark - so we have plenty of time to get the application in.
Equally, you need to make sure that you meet the deadlines provided by the tribunal in their directions.
It is a favourite trick of freeholder’s valuer to leave it until the last minute and then reach a settlement. We had one case where the freeholder failed to exchange calculations or a valuation report. The valuer called us up the afternoon before the hearing to see if we could reach an agreement. By this time, we’d prepared heavily, and they hadn’t given us any reason to compromise. Without evidence, the hearing wasn’t going to go in the freeholder’s favour, and she made what was nearly a full concession to avoid it.
Following this case now advise freeholders that we will not negotiate in the two weeks before the hearing. This means if they want to negotiate, they will do it early and before the parties and the tribunal service go to the expense of preparing for the hearing.
Going to tribunal is not for the faint-hearted and can be intense.
You must prepare a strong case, to be cross examined by the freeholder and to cross examine them too. This takes time to prepare to ensure you perform well.
I read a tribunal decision recently which stated “We did not find Mr X to be a satisfactory expert” – clearly this is every valuer’s worst nightmare!
Both from a written perspective and during oral arguments, less can be more. Your arguments must be detailed and well supported – but you should not go overboard.
Don't be biased
Despite the fact your valuer is working for you, they must be an independent witness for the tribunal.
This means that they should only supply evidence and opinions which they consider to be true.
We recently had a case where the freeholder was arguing for a premium which was completely unreasonable. I asked their valuer whether he was happy to sign his name to the argument. He wasn’t, and they settled.
Frequently asked questions
If you make an application to tribunal, but then reach a settlement, can you withdraw your application?
Absolutely. Just because an application is made doesn’t mean that you will end up at a hearing.
In fact, one tribunal employee told me that fewer than 20% of applications make it to a hearing
If you think a tribunal's decision is wrong, can you appeal it?
Yes, in principle. If you are not happy with the decision provided by the First Tier Tribunal, you can ask the Upper Tribunal to reconsider it – but you are going to need a good reason. In practice this rarely happens because it is so expensive.
In one of our cases an administrative mistake had been made by the tribunal in their calculation – which overstated the premium by £600. We gently let them know that a mistake “may have been made” and ask them whether they “may like to consider whether it should be rectified”. They issued a corrected decision shortly after.
Who is on the tribunal?
Usually, the tribunal is made up of one or more senior valuers and sometimes a solicitor as well.
Do they always make the right decision?
The valuers on the tribunal are very experienced and they are unbiased too.
However, valuation is an art not a science and sometimes a decision they make is overturned by the Upper Tribunal - which shows that they don't make a perfect decision every time.
This is one of the reasons that you should avoid tribunal if you don’t have a solid argument, or the evidence is a bit shaky – you might not get the decision you want!
Do you need to have certain qualifications to present evidence at tribunal?
To prepare and present your evidence and cross examine, you do need to be genuine expert – but you don’t need to have a particular qualification. A leaseholder can represent themselves if they wish, but they should be very well prepared.
Lots of leasehold experts are chartered surveyors (MRICS or FRICS) but equally many are not.
Homehold isn’t a firm of chartered surveyors. A freeholder’s valuer helpfully raised that in a recent hearing – the tribunal firmly stated it was not relevant! The cherry on the top was they ruled in our client’s favour too!
If you lose, do you have to pay the other side's costs?
No - the legisltation explicitly states that the tenant is not liable for any tribunal-related costs that the freeholder incurs. Equally, the freeholder does not have to pay the leaseholder’s costs.
The exception to this is if one party acts unreasonably – but so long as you conduct yourself professionally, comply with the deadlines and can demonstrate you’ve made a genuine effort to reach a settlement this is unlikely to be an issue.
A case study...
You have heard our view on tribunal - but below is a write up (taken from a Google Review) from one of our clients.
"I had a lengthy discussion with Linz on tribunal as well as potential outcome. It was nerve wracking but I was reassured that Homehold will do everything they can to ensure a fair premium is determined. Homehold made an application to tribunal, and the freeholder dropped their price to £19,000. Just before the hearing they dropped their price again to £16,250.
Linz attended the hearing, and the tribunal determined the premium to be £13,100.
Going to tribunal is usually very expensive – thousands of pounds. This is why some freeholders won’t compromise. But I have support from Homehold team and felt strongly this was the best option.
Fortunately, in my case Homehold were prepared to handle proceedings for me for a fixed-fee which was low enough to make it well worth going. They did this essentially to strengthen their hand in future negotiations with my freeholder and others."
Aiste K, September 2021