A potential conundrum indeed

Having negotiated the premium for a lease extension including my client’s head lease to give the claiming lessee an overall extended lease of approx. 987.5 years instead of an additional 90 years to approx. 141 years, the claiming lessees decided to withdraw pending the outcome of the Leasehold and Freehold Reform Bill currently wending its way through parliament.

Assuming the Bill indeed becomes law and the lessees claim a proposed extended lease of 990 additional years, the future extended lease will overall be 20.25 years longer than the voluntary deal offered.

This raises a potential conundrum.

As stated in my February blog, all intermediate leases are to be merged with the freeholder’s superior interest. The claiming tenants will also not be required to apportion the premium between the respective superior interests nor be required to negotiate the separate premiums payable between the respective landlords.

In due course, the lessees will serve notice on the freeholder as the competent landlord who will effectively be uninterested as:

  • it enjoys no ground rental income,
  • the value of its 20.25-year superior interest in 987.5 year’s time (based on today’s valuation date) will be effectively nil, and –
  • will not recover (as proposed) its costs


  • has a duty of care to the intermediate landlord.

So who will negotiate the premium – the freeholder or the intermediate landlord?

From the intermediate landlord’s point of view, why would he want to run up unrecoverable costs other than be in the ‘driving seat’ to ensure he can extract the best premium possible for the loss of his interest.

Only time will tell once we know exactly what the Bill will look like once it completes all its parliamentary stages in respect of how the above scenario is to fairly resolved.