Section 42 Notice – What is it and the Lease Extension Process

Everything You Need to Know About Section 42 Notice

Subject to meeting specific eligibility criteria, the law provides leaseholders with a right to have their lease extended. This right is stipulated in the Leasehold Reform, Housing, and Urban Development Act of 1993, allowing the leaseholder to have a 90-year extension on their lease. To initiate the statutory leasehold extension process, a notice must be served on the freeholder or landlord. This Notice is commonly known as Section 42 Notice or the Tenant’s Notice. This guide highlights everything that you should know about Section 42 Notice.

Section 42

Defining Section 42 Notice

A Section 42 Notice is a request formally served to a freeholder from a leaseholder. In addition to an entitlement to a 90-year lease extension, the ground rent is reduced to a peppercorn. Peppercorn rent refers to a small amount paid by a leaseholder to satisfy legal agreement between them and the freeholder. The Notice also outlines a proposed premium for the allowance of the lease extension. Within two months of serving a Section 42 Notice, the freeholder or landlord will respond through a Counter Notice. A Counter Notice shows the freeholder’s acceptance or rejection of the lease extension.

It is worth noting that not every tenant is legally permitted to serve a Section 42 Notice. You can only serve a freeholder with a Section 42 Notice if you are eligible for a lease extension.

Eligibility to Serve Section 42 Notice

A freeholder cannot reject a served Section 42 Notice provided the leaseholder is eligible for the formal lease extension. They may, however, reject the Notice on the basis of the premium offered or if the leasehold is not eligible for the lease extension. You are qualified to serve a freeholder with a Section 42 Notice if;

• You have owned the property for at least two years.
• The term of the initial lease granted extended to over 21 years.
• The property for which you are seeking a lease extension is not commercial or business property.
• The flat under the lease is not a function of a charitable housing trust.

Contents of a Section 42 Notice

The contents of the Tenant’s Notice are stipulated in the Leasehold Reform, Housing, and Urban Development Act of 1993. In accordance to this Act, Section 42 Notice contains the following elements;

• The tenant’s full name and address of the flat or property for which they seek lease extension.
• Identity of the property in question through sufficient provision of its particulars.
• The particulars of the tenant’s initial lease. These include the commencement date of the lease, the terms around the lease, the lease term, and the date the lease term started.
• The proposed premium payable to the freeholder in respect of granting lease extension for the property in question.
• The proposed terms by the tenant on the suggested lease extension.
• Details of the solicitor appointed to act on behalf of the tenant, including the name and address in England and Wales through which future notices may be served.
• The date the tenant desires to have the landlord or freeholder serve a Section 45 Counter Notice in response to the Section 42 Notice. This date must, however, be above the 2-month threshold required in servicing of a Counter Notice.

About the Section 45 Counter Notice

While the Section 42 Tenant’s Notice serves as the initiating document of the lease extension process, it is the Freeholder’s Counter Notice that determines the progress of the extension. Once served with a Section 42 Notice, the freeholder responds through the Counter Notice in either of the following ways;

• Accepting the lease extension request and consenting to your terms.
• Accepting your lease extension request but with the condition that you agree to alternative terms.
• Reject your request on the grounds of the landlord’s claim to redevelop the flat.
• Reject your request on the grounds of ineligibility to statutory requirements of a lease extension or faults found in your Section 42 Notice.

It is rare to have a freeholder reject the Tenant’s Notice. This is because rejecting a Section 42 Notice might lead the landlord into severe legal consequences. These may include order by a court to agree with the leaseholder’s terms or even losing control over the premium proposed on the lease extension. Often, when a freeholder accepts the request on condition that you agree to new terms, it is a way to create a window for negotiations.

Section 42 Notice is a significant document when it comes to lease extensions. Any fault found on it, therefore, can be a basis for its dismissal in a court of law. When your Section 42 Notice has been dismissed in court, it means that your request for lease extension has been brought to a halt. The worse consequence of a rejected Section 42 Notice is that you cannot make any other application for a lease extension for the next one year. This is why you should consider hiring a professional lease extension solicitor.

Benefits of Hiring a Solicitor to Serve Your Section 42 Notice

It is possible to serve a Section 42 Notice by yourself. However, getting a helping hand from an expert solicitor comes with numerous benefits, including;

• Experience and Expertise

Serving a Section 42 Notice that is incomplete and inaccurate is one of the reasons why the Notice can be dismissed in court. Lease extension solicitors have experience in serving numerous notices for different clients. They are, therefore, familiar with the common loopholes and faults that may lead to the rejection of a notice. With a solicitor, you can be sure that your Section 42 Notice will be served flawless. And the likelihood of the lease extension being granted by the freehold is also high, due to the legal participation and negotiating skills of a solicitor

• Notice Follow Up

Solicitors will help you follow up on the freeholder’s Counter Notice. In case the freeholder fails to serve a Counter Notice, solicitors will offer you guidance on the best course of action to take.

• Legal Advice

Serving a Section 42 Notice is a statutory procedure in its entirety. A lease extension solicitor provides you with legal guidance and support necessary when serving the Tenant’s Notice. They will clearly explain the legal procedure for serving the Notice and advise you on all the details that should be in the section 42 notice before you can finally serve it to the freehold.

• Negotiations

In addition to helping you prepare the necessary documents for a lease extension, solicitors also assist you in negotiating with a freeholder on the premium for the extended lease. They will be beneficial in turning the negotiation terms to your advantage. You may end up with a better deal from the section 42 notice when you let a solicitor take over the negotiations.

The Process of Serving a Section 42 Notice

Here is a step-by-step guide on the process of serving a Section 42 Notice;

1. Lease Premium Valuation

Premium valuation is the process of establishing how much you will pay a freeholder for the lease extension. A Section 42 Notice should contain information on your proposed lease extension premium. The valuation of this premium should be established by an RICS valuer who is licensed to venture into this field. Valuers from the Royal Institution of Chartered Surveyors (RICS) are experts in estimating the cost of a lease for an extended period. The value of your premium should not be too low. A low premium valuation forms a basis to have your Notice rejected by the freeholder.

Hiring an RICS valuer is essential for the following reasons;

• They will help you know the right premium to feature in the Tenant’s Notice.
• They help you to establish the potential of a premium in all circumstances.
• The valuer will assist you in responding to the freeholder’s Counter Notice.
• The valuer offers guidance during negotiations with the freeholder on the payable premium.
• They will advise you on the state of a property and how that state is likely to affect its future service charges.

2. Check Whether You Can Afford the Proposed Premium

You will be required to pay the freeholder a premium as compensation for lease extension and loss of ground rent income. You should, therefore, evaluate the premium valuation highlighted by your valuer to establish whether you can afford to make such a payment. Once you ascertain that you can afford the premium, you can now hire a solicitor for support in serving your Notice.

3. Hire a Solicitor

A professional solicitor will help in handling the rest of the phases of serving a Section 42 Notice, including the following;

• Obtaining the relevant information to prove identity, address, and financial capacity to fund the premium.
• Obtaining a copy of your lease.
• Verifying your eligibility to apply for a lease extension.
• Getting the home address of the freeholder or landlord.
• Liaise with your freeholder to evaluate your reasons for a formal lease extension.
• Obtain details of the freeholder’s solicitor.

4. Section 42 Notice Drafting

Your solicitor will also assist you in drafting a Section 42 Notice. The draft must contain all the elements as required by the Leasehold Reform, Housing, and Urban Development Act of 1993. Once they are done with drafting the Notice, you will be required to sign it in the presence of a signature.

5. Serving the Notice

Once the Section 42 Notice has been drafted and signed, it is ready to be served to the freeholder’s address. This should be done by your solicitor through a special delivery or a courier. This is to ensure that the Notice has been received and signed by the freeholder. It is important to note that the cost of delivering the Notice is on you. The landlord may also require you to send the evidence of your eligibility for the lease extension.

In case you are unable to find the freeholder’s home address, you can request their last known address from the Land Registry at a fee of £3. If the freeholder cannot be located (an absent freeholder), you can apply to a court for a Vesting Order. The vesting order allows you to serve the Section 42 Notice to the court (on behalf of the freeholder).

What Next After Serving a Section 42 Notice?

Once you have served the Tenant’s Notice on the freeholder’s address and they have acknowledged receipt, the landlord has two months to respond to your request. The response is captured in the Counter Notice with the landlord showing their interest or disinterest in the request. If the freeholder has rejected your Notice without any grounds, then you are legally entitled to make an application to a court for a Vesting Order.

If the landlord approves your Tenant’s Notice and the necessary negotiations finalised, your solicitor will assist in registering the Section 42 Notice at the Land Registry. You will, however, be required to settle some financial obligations, including premium for the new lease, professional fees, ground rent, stamp duty, and other service charges.

Section 42 Notice Time Limits

• Issuance of the Section 45 Counter Notice

The freeholder is required by law to take at least two months before issuing their response to the Tenant’s Notice. Their response should be a formal document referred to as a Section 45 Counter Notice. In this document, the freehold should clearly outline that they have accepted the terms for a lease extension, or they decline the lease extension request. Should they reject the section 42 notice from the leasehold, they should also state in the counter notice all the valid reasons for the rejection as allowed by the law.

• Confirmation of Eligibility

The landlord may request proof of eligibility to lease extension. They, however, have only 21 days to request for this confirmation. The leaseholder is then allowed to reply to this request within 21 days.

• Inspection Notice

The freeholder has the right to inspect the property in question to establish its value. This process is, however, subject to a 3-day notice, and should be done in writing.

• Rejection of Tenant’s Notice

The freeholder has at least two months and at most six months to give reasons for the rejection of your Section 42 Notice. The reasons stated in the rejection document should, however, be valid enough for the lease extension request to be dismissed.

Section 42 Notice Fees

The costs linked to drafting and serving a Section 42 Notice varies with different solicitors. Here are some estimated costs to assist you in your conveyancing budget.

• Lease Extension Valuation Using a Qualified Valuer – £500 to £1000
• Leaseholder’s Solicitors Fee – £500 to £800
• Online ID Fee Per Person – £8
• Freeholder’s Solicitors Fee – £800 to £1500
• Obtaining Copy of the Lease – £3
• Register and Title Plan Copies Per Title – £6
• Registering the Section 42 Notice at Land Registry – £20

You may also be required to make extra payments for services such as obtaining a Vesting Order, negotiations for the lease extension premium, and completion of the lease extension process. All the cost estimates highlighted here are tax inclusive.