When are the Terms of Acquisition Agreed?

What are the terms of acquisition and when are they agreed?

The Leasehold Reform Housing and Urban Development Act 1993 entitles a qualifying tenant to extend their lease.

The basic parameters of this lease extension are set out by the legislation: a 90-year extension at a peppercorn rent.

However, there is likely to be a negotiation between the parties both on the terms which should be included within the lease and the price that the tenant should pay. Simply put, these are the “terms of acquisition”.

Why is it so important to know what the terms of acquisition are and when they are agreed?

It is crucial in a statutory lease extension claim to know that the terms of acquisition have been agreed and the date of the agreement.

This is because the terms of acquisition must be agreed within six months of the counter notice being given. Once they are agreed, a new four-month period is started within which the transaction must be completed.

If either of these deadlines is missed, the claim is “deemed withdrawn”. For both sides this could lead to significant wasted costs and the tenant would have to wait twelve months before making a new claim.

There has been significant litigation on what is included within the terms of acquisition, and when they are agreed. This article reviews some of these cases and summarises what can be concluded from them.

What is included within the terms of acquisition?

Section 48(7) of the 1993 act defines the terms of acquisition as: “the terms on which the tenant is to acquire a new lease of his flat, whether they relate to the terms to be contained in the lease or to the premium or any other amount payable by virtue of Schedule 13 in connection with the grant of the lease, or otherwise.”

In Greenpine Investment Holding Ltd v Howard de Walden Estates Ltd [2016] EWHC 1923 (Ch) (“Greenpine”) the judge commented at [37] that “the terms of acquisition to be agreed or determined by the Tribunal are the proposals contained in the respective notices that remain in dispute at the relevant time.”

Does the form of the lease form part of the terms of acquisition?

Not usually. It was commented in Bolton v Godwin-Austen [2014] EWCA Civ 27 [2014] 1 EGLR 137 (“Bolton v Godwin-Austen”) that “It is common ground in this case that the “terms of acquisition” and the form of the lease to be granted are different concepts. Broadly, the “terms of acquisition” are what are known commercially as “heads of terms” and the form of lease is then drafted to give effect to the terms of acquisition.”

The clear exception to this is where the counter-notice proposes an annexed lease. In this case all the provisions within the draft lease, and therefore the draft lease itself, form part of the terms of acquisition.

Equally, when there are counterproposals (other than the consideration) in the counter notice, then the terms of acquisition in dispute will likely be resolved by each party reviewing these proposals in situ within a draft lease. In these cases, while the terms of acquisition might not strictly include the draft lease, they will not be agreed until the draft lease is approved.

Do section 60 costs form part of the terms of acquisition?

No, the costs are provided for under separate provisions in section 60. This is confirmed in Greenpine at paragraph [28].

When are the terms of acquisition agreed?

The terms of acquisition are agreed when there are no terms left in dispute. There is no requirement under the legislation for the parties to explicitly confirm they are in agreement that the terms are agreed.

If all the proposals in the initial notice are accepted in the counter-notice, then the terms are agreed on the date the counter-notice is given. This conclusion is shared by the FTT in LON/00BH/ORL/2019/1061 at paragraph [23] and a similar situation occurred in Bolton v Godwin-Austen where the terms of acquisition were determined to be agreed when the tenant unconditionally accepted all the proposals in the counter notice.

Along a similar vein, if the only term in dispute in the counter notice was the premium and this has been agreed by the valuers, then the terms of acquisition would be agreed as of the date of their agreement.

As already mentioned, where either there are legal terms in dispute in the counter notice, or it proposes an annexed draft lease, then the terms of acquisition will only be agreed when the draft lease is agreed.

It seems to be good practice, once the terms of acquisition have been agreed, for one party to assert they consider them to be agreed and the date of the agreement. Even if the other party does not confirm explicitly that they agree, their silence and inaction could be argued to give rise to an estoppel preventing them from later taking a different position.

What happens once the terms of acquisition have been agreed?

If a draft lease hasn’t been agreed as part of the terms of acquisition, the next stage will be to get this agreed.

The Leasehold Reform (Collective Enfranchisement and Lease Renewal) Regulations 1993 set out a process for this:

(1)   The landlord must prepare a draft lease within 14 days starting with the date the terms of acquisition are agreed

(2)   The tenant must respond with any proposed changes within 14 days starting with the date the draft lease is provided

(3)   The landlord must respond with any further changes within 14 days starting with the date they are provided with the tenant’s amendments.

If either of the deadlines in (2) or (3) are missed, that party will have been deemed to have agreed the lease in the form proposed by the other.

However, it is worth noting that these regulations are only in effect if the terms of acquisition have been agreed – i.e. if the lease is being negotiated before the terms of acquisition have been agreed, there is no opportunity for deemed agreement. The tribunal came to the same conclusion in BIR/00CW/OLR/2020/0019 at [30].

In Conclusion

For many lease extension cases the principles above will not be tested – either they will complete comfortably within the deadlines or neither side will have an interest in frustrating the deal.

But to avoid opportunity for dispute, it is important to ensure communications between parties clearly demonstrate when agreement was reached, and preferably explicit agreement to establish the statutory timelines are also secured.

Linz Darlington is Managing Director ofHomehold.