Everything you've ever wanted to know about Section 42 Notices but were afraid to ask!

If you own a leasehold property, then you will have a fixed term of years which you are entitled to occupy that property and at the end of the lease, you are required to vacate. Long term residential leases usually have very long terms, such as 99 or 125 years, or sometimes even 999 years. When the lease term reduces, it can affect the value of the property, particularly towards the end of a lease. Having 50-60 years left on your lease may not seem like a short term, but most high street mortgage lenders will not offer mortgages to those with lease terms of less than 70-80 years remaining.

How do I extend my lease?

There are a couple of ways of extending a lease:

1.       Through negotiation with the landlord. This involves asking the landlord for an extension of the term of the lease. It usually gives rise to an additional cash sum or “being paid” which is often determined either by the landlord directly or a surveyor.

2.       By a Section 42 Leasehold Reform Housing and Urban Development Act 1993 Notice.

If your lease term is reducing and you want to extend the lease, you have a statutory right to do so under the Leasehold Reform Housing and Urban Development Act 1993, provided that certain eligibility criteria are met. This Act allows leaseholders to extend their term for an additional 90 years.

Do I qualify to serve a Section 42 Notice?

In order to be able to validly serve a Section 42 Notice, you must have:

1.       Owned the property for at least 2 years.

2.       Have an original lease term that was granted for more than 21 years – this means that when the lease was originally made, the term must have been for more than 21 years.

3.       The property which is subject to the lease must be residential i.e., it cannot be a commercial or business property.

How do I serve a Section 42 Notice?

Provided you meet the eligibility criteria, the Notice must contain the following:

1.       Your full name as the tenant and the full address of the property that you want to extend the lease.

2.       Terms of the original lease, so you will need the original lease’s date, its terms, the number of years granted and when that term began. It often helps to have the original lease or at least a copy of it to accompany the Section 42 Notice when you submit it to the landlord.

3.       The proposed term i.e., how many years would you like. This is up to a maximum of 90 years but the more years you request, the higher the premium.

4.       The proposed premium i.e., the sum of money that you will be paying to the landlord in exchange for granting the lease extension. We would advise that you engage a surveyor who is a member of the Royal Institute of Chartered Surveyors who will be able to determine what a reasonable premium would be for the property based on the number of years you wish to extend the lease.

5.       Your solicitor details including the name, address and contact information so that the landlord can respond to them accordingly.

The notice must also state the date in which you require the landlord to serve a counter notice in response to the Section 42 Notice.

What happens after you have served a Section 42 Notice

The landlord can serve a counter Notice which is under Section 45 of the Leasehold Reform Housing and Urban Development Act 1993. This is sometimes referred to as a “Section 45 Counter Notice”. The landlord has several options:

1.       Accept the request for the lease extension and agree to the terms proposed. This would then trigger drafting a new lease.

2.       Reject the request on the grounds that you do not qualify because you are not eligible (see the eligibility criteria above).

3.       Reject your request on the basis they wish to redevelop the property.

4.       Accept the lease extension request but only on the basis that different terms than those already proposed or agreed.

The landlord has a strict timeline to serve this counter notice and it must be served within 2 months after receiving the Section 42 Notice.

The landlord also has other certain rights, for example, they can request to inspect the property. They may wish to do this if they want to have their own survey to determine what the premium would be worth, however, they must give you 3 days written notice in advance. They can also request proof of your eligibility for the lease for extension, but they have 21 days to make this request after receiving the Section 42 Notice.

If the landlord serves a counter notice rejecting the request for a lease extension, they have at least 2 months but no more than 6 months to provide reasons for rejecting the notice.

If the landlord rejects the Section 42 Notice without giving a reason, then you have a legal right to apply to Court for what is known as a Vesting Order. It is important to note that whilst this is going on, at any stage the parties can agree by negotiation to a lease extension, the Section 42 Notice is an effective way in which tenants can lawfully seek to extend their lease.

The importance of using a solicitor when service a Section 42 Notice

It is critical that the contents of a Section 42 Notice are absolutely correct. A solicitor’s expertise can ensure that this does not happen as any flaw discovered on such Notice could be dismissed if the matter had to be referred to Court. You may also need a solicitor to assist with a freeholder’s counter notice and any subsequent negotiation you have with the freeholder, as well as using the solicitor’s experience to help guide you through the process. There are very strict timescales in serving Section 42 Notices and counter notices and those timescales cannot be varied or extended, so it is important to get it right the first time.

Conclusion

We hope that this guide gives you a basic outline of the Section 42 procedure. If you are in a situation where you have a lease that you would like to extend but you are unsure as to how to go about this, please do not hesitate to contact our offices at abright@alwenajonesbright.co.uk.

Author: Andre Bright