Recoverable costs on Collective Enfranchisement and Lease Extensions

Considerations for Landlords

Recoverable costs on Collective Enfranchisement and Lease Extensions
Collective Enfranchisement
 
Section 33(1) of The Leasehold Reform, Housing and Urban Development Act 1993 (LRHUDA 1993) confirms that once the initial notice is served, the nominee purchaser is liable for the ‘reasonable’ costs of the freeholder and any other relevant landlord ‘of and incidental to’ the enfranchisement claim. Those reasonable costs are limited to certain matters and include: 
 
1.    Investigating the claim or any question arising out of the notice
2.    Deducing title
3.    Valuation costs
4.    Conveyancing costs
 
The costs of negotiating with the nominee purchaser’s valuer or dealing with a First Tier (Property Chamber) application are not included. 
 
The question of ‘reasonableness’ of the costs payable is determined by section 33(2) LRHUDA 1993 which states:
 
“any costs incurred by the reversioner or any other relevant landlord 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.” 
 
The important recent case of Columbia House Properties (No.3) Ltd v Imperial Hall Freehold Ltd [2015] UKUT 45 (LC) confirmed that the recoverable costs that are ‘incidental to’ the enfranchisement claim include the costs of the landlord’s managing agent providing they are reasonably and properly incurred. 
 
 
Lease Extension 
 
Section 60(1) LRHUDA 1993 confirms that once the notice is served, the tenant is liable for the landlord’s reasonable costs for the following:
 
1.    Investigating the claim of the tenant’s right to a new lease
2.    Valuation costs 
3.    Conveyancing costs of the granting of the new lease 
 
As with collective enfranchisement, section 60(2) LHUDA 1993 confirms that the reasonable costs that are recoverable are those that the landlord would reasonably be expected to have incurred if the landlord was personally liable for them themselves. The costs of negotiating with the tenant’s valuer or dealing with a First Tier (Property Chamber) application are not included. 
 
The case of Dashwood Properties Ltd v Christostom-Gooch [2012] UKUT 215 (LC) has helped further clarify how reasonable costs are to be determined. Here the Upper Tribunal confirmed that:
 
1.    The premium paid for a lease extension can be taken into account when determining if costs were reasonably incurred.
 
2.    It is not reasonable for a landlord to instruct a firm of solicitors to consider the merits of the claim and one to deal with the conveyancing work as there is an element of duplication in respect of the work carried out by each of them.
 
Conclusion 
It is important that a landlord considers the issue of recoverable costs throughout the process of dealing with an enfranchisement or lease extension claim. 
 
This should ensure that they are not out of pocket at the end of the transaction. The landlord needs to ensure that their costs prior to any First Tier (Property Chamber) application are both reasonable and properly incurred and therefore recoverable. 

A landlord must consider the issue of recoverable costs throughout the process of dealing with an enfranchisement or lease extension claim and ensure they are not out of pocket at the end of the transaction.

Author

Robert Denman
Robert Denman
Senior Associate Head of Real Estate

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