Leasehold Enfranchisement: The Covid Effect

Joshua WatkinsAssociate, Herrington Carmichael LLP

Apr 7, 2020

What is the current position?

Many individuals and businesses will have either began the preparatory work for a proposed lease extension or enfranchisement, or will have been part-way through the process when the UK’s lockdown came in to force.

We have seen the government issue guidance that concerns residential house moves, but no guidance has yet been specifically put forward where it relates to statutory lease extensions and enfranchisement.

The statutory procedure for lease extensions and enfranchisements is largely governed by strict timeframes that have to be adhered to, and at the time of writing there is currently no respite or recompense for anyone who is unable to adhere to those timeframes owing to the effect and ramifications of Covid-19.

The legislation governing this area of law also provides for original hard copy (wet signature) notices to be served and which is proving difficult for many to adhere to given that the majority of us are now working remotely.

What happens if the legislation is not adhered to?

Currently, if the legislation is not adhered to, then the consequences that would normally apply will continue to do so. By way of example:-

  • If the landlord fails to service a valid counter notice (section 45 notice) on the tenant who has served a section 42 notice for a lease extension claim by the date specified in the tenant’s notice, then the landlord loses the right to dispute the terms proposed in the tenant’s notice.
  • In a collective enfranchisement case, if the terms of acquisition remain in dispute and no application for made to the First-Tier Tribunal to determine those terms before the expiry of the appropriate period, then the initial notice is deemed withdrawn.
  •  If terms for a lease extension have been agreed and a tenant fails to apply to county court for a vesting order within the prescribed timeframe because the parties have failed to enter into the new lease, then the tenant’s initial notice is deemed to be withdrawn. Not only does this have cost implications, but it also prevents the tenant from service of a new notice for 12 months.

Is anything being done to try and assist the parties to these transactions?

Whilst we wait to see if there will be any government guidance issued advice, or temporary legislative measures put in place, we can only try and establish an agreed procedure with other practioners that all parties agree to adhere to.

The Association of Leasehold Enfranchisement Practioners (ALEP) have issued a protocol governing the procedure for issuing notices which aims to mitigate the problems being experienced in serving physical notices at this time by allowing electronic service, and also extensions to timeframes. The protocol would need to be adopted by all parties at the outset in writing and all ALEP member are being encouraged to adopt it. What we do not know is if there were to be a dispute as a result of using the protocol, how a court would interpret the application of the protocol and its compatibility with the legislation. One would hope that there would be no disputes as a result of the use of the protocol, as it is hoped that everyone is acting in good faith, especially at this time.

Should lease extensions and enfranchisement claims be undertaken at this time?

Provided the parties concerned are aware of the statutory timeframes at the outset and are comfortable that they, their lawyer and any other persons concerned are able to meet them, and all are able observe the government guidance including that on social distancing, then there is no reason why not.

We have seen an initial upturn in this type of instruction in the last few weeks, with many citing that they are looking to proceed as a result of having the time to consider the benefits of undertaking their lease extension sooner rather than later, and the fact that it is possible to see the transaction through to completion without actually having to physically see anyone.

Is it sensible to agree a voluntary lease extension at this time?

A voluntary lease extension is carried outside of the statutory provisions, where the tenant and landlord have agreed the terms of the lease extension directly between themselves.

We always advise our clients to consider both the voluntary route and the statutory route as there can be benefits to both depending on the individual circumstances. Providing a copy of a voluntary offer to a specialist valuer is worthwhile so that they can advise you whether the offer is satisfactory, or whether you should pursue the statutory route.

The voluntary route is often quicker, and it removes a lot of the red tape that comes with the statutory process. However, this route should not be taken at the expense of what may be a better offer under the statutory process and both should be considered carefully.

If you require further guidance regarding the effect of the Coronavirus on lease extensions or enfranchisement please contact Joshua Watkins, in our Real Estate department or email your query to joshua.watkins@herrington-carmichael.com ; call us on 01276 686222 or visit our website https://www.herrington-carmichael.com/contact/

This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.


Contributing Advisors

Alex CanhamPartner, Herrington Carmichael LLP