Lease Extensions - Landlords FAQs

What is a section 42 notice?

This is a legal notice given under the Leasehold Housing and Urban Development Act 1993. If receiving such a notice, it means that a leaseholder in your building is trying to purchase a lease extension and is doing so by offering you terms. By law, providing the claim and notice is valid, you would then have two months from receipt of the notice to respond with a counter notice. Should you fail to do so, the leaseholder is entitled to buy the lease extension on the terms contained within their section 42 Notice (also known as an “initial notice”). It is, therefore, important that you instruct a Solicitor and a Surveyor as soon as possible to deal with this kind of notice. The Leaseholder must pay your reasonable legal and surveyor costs involved in this process.

Can I offer a lease extension to the leaseholder?

As an alternative to the Section 42 method, you may wish to pre-empt a statutory claim by offering a voluntary lease extension arrangements. The advantage here is that you can offer the leaseholders terms that are different from those they would be entitled to obtain through the statutory process (90 additional years at a peppercorn rent). This is often better for both parties concerned, as this leaves the potential for the Leaseholder to pay a lesser premium for a shorter term, since the leaseholder will often only be concerned with preventing the lease from running under 90 years remaining, in return, you may have ground rents that increase at a higher rate. Such ground rents will help reversionary interest and will be calculated if for example, a claim to buy the freehold occurs, resulting ultimately in a higher financial gain to you.

Can I stop a lease extension claim?

If the initial notice is itself invalid, it can be rejected. For example, if the leaseholder serving the notice has not owned the property for two years. If the notice is critically defective, then it can be rejected depending on the severity of the omission. If the notice is invalid it does not prevent a new correct notice from being created, in other words, invalidity will usually only delay the process, not stop it entirely. However as the premium price payable is dependent on a particular valuation date (the date a valid notice is served), you can see how such delays could be beneficial, especially for example where marriage value would otherwise not be applicable until the leases’ terms begin to elapse below 80 years.

How can I make the most from this lease extension process?

The premium counter offer valuation and the negotiations with the leaseholder will most often be done by your Surveyor. The amount you can achieve will, therefore, be affected by the skill and experience of the surveyor you use. We can recommend a variety of skilled Surveyors to choose from, should you need it.

If there are no grounds to dispute the claim, then you still will want to make the most out of this process. The legislation provides that the new lease for the extension must contain certain provisions, but it can also correct defects and modernise the lease.

It can be to your benefit to see that such changes are made. These can be of benefit to you, but there is no definitive list of these, but the following are some known examples: 

• The terms of the lease can bring registration fees up to modern values (adjusted to reflect inflation).
• It can rectify obvious drafting errors in the original leases.
• If there has been a change of circumstance, or a new law, then the lease can be changed to reflect that change.
• If the lease does not contain the correct service charge proportion (meaning that they do not add up to 100%) then this is one method of correcting the situation.

Can I vary all the leases to add subletting restrictions?

Variations of the leases is quite a common request, particularly in cases where the freeholder is made up of the leaseholders, and they are having difficulties managing the running of the building due to unsatisfactory clauses within the lease. There are two main ways this can be achieved: Either the freeholder reaches a voluntary agreement with those leaseholders to amend the lease, and pay to have it registered at the Land Registry. Alternatively, there is the more practical solution of applying to the First-tier Tribunal to obtain an order for those leases to be changed. The entitlement to make such an application derived from the Commonhold and Leasehold Reform Act 2002. Essentially, either the change require effects some required managerial function, in which case, even a singular party involved may apply. But for any other changes, at least 90% of the parties involved must consent to the change for such an order to be acquired.

For further information please call Cristiana Ion Popescu on 020 8290 7093 or email cionpopescu@judge-priestley.co.uk