Reasonable costs of the freeholder
07/04/2023
(Last Updated: 18/04/2023)
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8 min read
Key Takeaways
- The leaseholder is liable to pay the 'reasonable costs' of the freeholder when they extend their lease or buy the freehold (collective enfranchisement).
- Only certain costs can be charged as 'reasonable'
- The amount paid for each of those costs must also be 'reasonable'
- If you are in dispute over the Freeholder's reasonable costs, you may be able to settle this without having to go to tribunal.
This article covers: what are reasonable costs to pay the freeholder, when they are paid and what to do if the freeholder's costs are unreasonable.
How much do I pay the freeholder when i extend my lease?
You'll be liable for the freeholder's reasonable legal and valuation costs which can range from £500 to £3500. Read more below for how this is calculated.
We specialise in lease extensions and offer the complete service with our solicitors and RICS surveyors. If you are struggling with an unreasonable freeholder then we can help. Click or call us now on 0333 344 3234 (local call charges apply).
What are the reasonable costs of the freeholder?
(1) Where a notice is given under section 42, then (subject to the provisions of this section) the tenant by whom it is given shall be liable, to the extent that they have been incurred by any relevant person in pursuance of the notice, for the reasonable costs of and incidental to any of the following matters, namely
- any investigation reasonably undertaken of the tenant’s right to a new lease;
- any valuation of the tenant’s flat obtained for the purpose of fixing the premium or any other amount payable by virtue of Schedule 13 in connection with the grant of a new lease under section 56;
- the grant of a new lease under that section;but this subsection shall not apply to any costs if on a sale made voluntarily a stipulation that they were to be borne by the purchaser would be void.
What costs can be charged? | What costs can't be charged? |
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More than one leaseholder extending their lease? Read below how you can save up to 20% off the freeholder's reasonable costs. |
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- Lease extension
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- Extending the lease at the same time as you sell
We specialise in lease extensions and have RICS valuers for the premium/negotiation and solicitors for the section 42 notice and formal or informal extension.
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- RICS Lease Extension Valuation or L2 Homebuyers Survey
- Serving of the section 42 notice, or section 13 notice on the freeholder
- Negotiation with the freeholder (with the support of your RICS valuer)
- Completion of the legal work, including deed of variation
- Application to Tribunal to determine the premium
- Vesting order for absent landlords
How do you know what price is a reasonable cost?
Under Section 60 of the Leasehold Reform, Housing and Urban Development Act 1993, regarding lease extension cost, it states:
(2) For the purposes of subsection (1) any costs incurred by a relevant person in respect of professional services rendered by any person shall only be regarded as reasonable if and to the extent that costs in respect of such services might reasonably be expected to have been incurred by him if the circumstances had been such that he was personally liable for all such costs.
In summary, the freeholder's costs can't be more than they would pay for the work themselves.
Sinclair Gardens Investments (Kensington) Ltd v Wisbey [2016] UKUT 203 (LC)
In this case a leaseholder claimed their freeholder's costs of £1,725 plus VAT were unreasonable. Whilst the first decision reduced these costs, the freeholder then appealed and the Upper Tribunal (HHJ Huskinson sitting with the Registrar as an assessor) held as follows:
- Service of a counter notice was a “crucial step in the procedure". It was reasonable “for a landlord to instruct a solicitor, experienced in this specialised area of law, to consider a tenant’s claim to a new lease under section 42 and to advise upon the terms of a counter-notice."
- The costs of the solicitor in instructing a valuer and considering the valuer’s report were recoverable. They were costs “of and incidental to" the valuation of the tenant’s flat obtained for the purpose of fixing the premium under schedule 13.
- It was reasonable for the landlord to use a Grade A fee earner for the conveyancing work.
- It would be reasonable to allow a discount of 20% to the fees to reflect the opportunity that the landlord had to negotiate a discount referable to the fact that there were several lease extension claims in the same building.
The final point is interesting because it confirms that if more than one leaseholder is extending their lease then the reasonable costs of the freeholder should be discounted to allow for this opportunity. 20% was the discount applied to these costs.
Whilst individual cases may differ, the benchmark of £1,725 plus VAT is what can be called as reasonable.
Mr Kelsall v Metropolitan Property Realizations Ltd 2019
Click to read the full caseThis case saw a Tribunal determine the following freeholder costs as reasonable:
- Freeholder's legal costs of £3,322 INC VAT and disbursements totalling £20.40 (£2,768.70 EXC VAT)
- Freeholder's valuer's fees of £1,110 INC VAT (£925 EXC VAT)
In this case the claimant Mr Kelsall claimed he shouldn't have to pay the VAT and that the hourly rate of the acting solicitor was too high IE the work could have been done by a lower hourly rate solicitor or by a suburban cheaper solicitor. The first part the Tribunal confirmed VAT is payable if chargeable.
Regarding level of work, the Tribunal found that "It is possible (and perhaps would have been desirable) that some of this work could have been discharged or carried out by an assistant solicitor, but the Tribunal notes that … the saving, had an assistant been engaged … would have been modest. For future reference it is perhaps to be desired that greater use of an assistant for routine work should be encouraged, but the Tribunal is unable to say for present purposes that, looking at the matter in the round, the failure to do so pushes the sum claimed beyond the threshold of that which is reasonable in cases of this kind."
Regarding rate of a London law firm, the Tribunal found that "The FTT rejects the Respondent's argument that the Applicant should have used a “cheaper” suburban solicitor, or chosen a less experienced solicitor in its chosen firm that charges a lower hourly rate. The FTT accepts the Applicant's arguments that it is entitled to use the firm of its choice, in this case a longstanding choice of solicitor located in Central London. Of necessity, therefore, the FYI accepts that these solicitors charge Central London rates of which £450 per hour (plus VAT) is not regarded as “excessive”"
Freeholder's costs are unreasonable - What can you do?
Under the formal lease extension process an 'Application for Determination of Reasonable Costs for Flats and Premises' can be made to the First-Tier Tribunal. The freeholder and leaseholder bear their own costs to go to Tribunal.
The Tribunal will generally deal with the application by paper application (ie there won't be a need to attend court) to keep costs down; unless one party requires an oral hearing. The cost to the leaseholder of raising the issue the Tribunal would be around £900 INC VAT for the solicitor plus disbursements.
It is normally best to try and secure a reduction in the freeholder's costs without proceeding to Tribunal because the costs of making the application may outweigh any potential saving but it depends on how high the costs are and how unreasonable the freeholder is. These are some tips to reduce the freeholder's costs:
- Request an itemised invoice The freeholder's solicitor will provide an itemised bill of their time so your solicitor can identify any areas of time where you have been billed for work outside of the process
- Without Prejudice Offer Try and make a without prejudice offer to settle the matter as going to Tribunal will cost the freeholder a similar if not greater figure above so they should be inclined to settle with a discount ranging from £200 to £600.
You can't apply to Tribunal if your lease extension is informal. This means you must either negotiate with the freeholder to reduce their costs or apply to extend your lease formally. Please call one of our team if you need any help.
Get a Lease Extension Cost Quote
We specialise in lease extensions and offer the complete service with our solicitors and RICS surveyors. If you are struggling with an unreasonable freeholder then we can help. Click to get a competitive quote or call us now on 0333 344 3234 (local call charges apply)
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Written by:
Andrew Boast
Andrew started his career in 2000 working within conveyancing solicitor firms and grew hands-on knowledge of a wide variety of conveyancing challenges and solutions. After helping in excess of 50,000 clients in his career, he uses all this experience within his article writing for SAM, mainstream media and his self published book How to Buy a House Without Killing Anyone.
Reviewed by:
Caragh Bailey
Caragh is an excellent writer in her own right as well as an accomplished copy editor for both fiction and non-fiction books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey and mortgage related articles.
