QUESTION
When a leaseholder extends their lease, do they have to pay the landlord’s legal costs?
ANSWER
If you would just like the quick answer, yes – most of the time!
As with anything like this, there can sometimes be more to it.
- By way of background, the starting point is leaseholders tend to have two options when they extend their lease. First, they can serve a notice claiming a lease extension, if the lease and the leaseholder are eligible. Second, they can approach their landlord, with a view to discussing and ultimately doing a deal. These are typically known as formal and informal transactions, respectively.
- Currently, the law requires a leaseholder to meet part of their landlord’s costs (and any other party involved in the transaction), where a leaseholder claims a formal lease extension. The leaseholder is not obliged to pay for the landlord’s negotiation costs, but is otherwise required to pay the other costs associated with their claim. This includes legal and valuer costs. The costs must be reasonable and there is a right to challenge these in the relevant tribunal if they are unreasonable.
- I say “currently” as part of the proposed reform of the law relating to lease extensions, the Leasehold and Freehold Reform Act 2024 proposes to change this position, by further limiting the circumstances where leaseholders pay for their landlords legal costs. As at the time of writing this, we are waiting on further secondary legislation/regulation, to implement and to provide further framework for these things, so watch this space!
- As for informal lease extensions, where a leaseholder and their landlord can agree a deal, it is often the case that the landlord will request the leaseholder meet their costs. This is, however, all subject to agreement. As such, a leaseholder and a landlord could agree that they both meet their own costs.
Matt Lewis, Consultant Solicitor, Commonhold and Leasehold Experts Limited
