Tenants; has your freeholder served an invalid counter notice?

07 October 2020

A look at invalid notices in lease extensions and collective enfranchisement.

To the untrained eye, the procedure for applying for a lease extension or to acquire the freehold to your building (both contained in the Leasehold Reform, Housing and Urban Development Act 1993 (the Act)) might seem simple enough.

First, the tenant serves a Notice of Claim on the landlord. Second, the landlord responds by serving a Counter Notice. Third, the parties seek to agree the terms and price, and finally, the lease extension or freehold purchase completes.

In practice, these four seemingly simple steps are thwart with traps, hurdles and trip wires, not to mention the very strict statutory deadlines. 

For tenants, the best part of the process at which to take advantage of these traps is on receipt of the landlord's Counter Notice. Your legal advisor should thoroughly review the Counter Notice on receipt, to determine its validity.

The Act makes strict provision for the content of the landlord's Counter Notice. One of the most frequent mistakes that we see landlords (or their advisers) make is failing to respond to the proposals that are made within the tenant’s Claim Notice. The Act requires the landlord’s Counter Notice to state which of the tenant's proposals are agreed and which are not, and in respect of those which are not agreed, state a counter proposal.

The second most frequent mistake that we encounter is that some landlords do not appreciate that the deadline included in the tenant's Notice of Claim must be adhered too. Counter Notices are often received out of time and in some cases not at all.

But what is the benefit to the tenant of these failings by the landlord? 

If a Counter Notice is invalid or served out of time, the Act treats it as null and void; effectively, it is as though the Counter Notice had never been served. In these circumstances, the Act makes provision for a lease extension or collective enfranchisement to proceed on the terms that have been set out in the tenant's Notice of Claim.

What appears like a simple mistake, can result in a complete windfall for a tenant who becomes entitled to proceed with the transaction based on their offer – and in some cases, this can create a substantial saving on the ultimate premium payable to the landlord, which will have lost its right to negotiate terms.

The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at October 2020.



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