Section 42 Notice Explained: A Complete Guide for Property Owners
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Leaseholders have the right to have their lease extended if they meet certain eligibility criteria. This right is outlined in the Leasehold Reform, Housing, and Urban Development Act of 1993, which allows leaseholders to extend their lease for an additional 90 years. A notice must be served on the freeholder or landlord to begin the statutory leasehold extension process. This Notice is also referred to as the Section 42 Notice or the Tenant’s Notice. This guide summarizes everything you need to know about Section 42 Notice.
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Definition: Section 42 Notice
A Section 42 Notice is a formal request from a leaseholder to a freeholder. The ground rent is reduced to a peppercorn in addition to the right to a 90-year lease extension. A leaseholder pays a small amount of peppercorn rent (£1 per annum) to satisfy a legal agreement between them and the freeholder. The Notice also includes a proposed premium for the lease extension allowance. The freeholder or landlord must respond with a Counter-Notice within two months of receiving a Section 42 Notice. A Counter-Notice indicates whether the freeholder accepts or rejects the lease extension.
Eligibility: Serve Section 42 Notice
If the leaseholder is eligible for the formal lease extension, there are very few reasons that a freeholder can reject a served Section 42 Notice. However, they may reject the Notice based on the premium offered or if the leasehold is ineligible for the lease extension. You are qualified to serve a Section 42 Notice on a freeholder if and only if you meet the following criteria:
- You’ve owned the property for at least two years.
- The initial lease was granted for more than 21 years
- The property for which you want to extend your lease is not commercial or business property.
Contents: Section 42 Notice
The Leasehold Reform, Housing, and Urban Development Act of 1993 specifies the contents of the Tenant’s Notice. Section 42 Notice must include the following elements, according to the Act
- The tenant’s full name and the address of the property for which they want to extend their lease.
- The terms of the tenant’s first lease. These include the lease’s date, the lease’s terms, the lease term, and the date the lease term began.
- The proposed premium is payable to the freeholder in exchange for granting a lease extension for the subject property.
- The tenant’s proposed terms for the proposed lease extension.
- Details of the tenant’s appointed solicitor, including the name and address in England and Wales where future notices may be served.
- The date on which the tenant wishes the landlord or freeholder to serve a Section 45 Counter Notice in response to the Section 42 Notice. This date, however, must be more than two months after the Counter Notice was served.
Concerning the Section 45 Counter Notice
While the Section 42 Tenant’s Notice initiates the lease extension process, it is the Freeholder’s Counter-Notice that determines the extension’s progress. When served with a Section 42 Notice, the freeholder may respond in one of a number of ways via the Counter-Notice:
- Accepting the request for a lease extension and agreeing to your terms.
- Accepting your lease extension request, but only if you agree to different terms.
- Refuse your request due to the landlord’s claim to redevelop the flat.
- Reject your request due to ineligibility for statutory lease extension requirements or flaws in your Section 42 Notice.
It is unusual for a freeholder to reject the Tenant’s Notice. This is because rejecting a Section 42 Notice may result in severe legal consequences for the landlord. These may include a court order to agree to the leaseholder’s terms or even losing control over the lease extension premium. When a freeholder accepts your request on the condition that you agree to new terms, it is often a ploy to open the door to further negotiations.
When it comes to lease extensions, the Section 42 Notice is an important document. Any flaw discovered on it can thus be used to dismiss it in a court of law. When your Section 42 Notice is dismissed in court, it means that your lease extension request has been halted. The worst consequence of a rejected Section 42 Notice is that you will be unable to apply for a lease extension for another 12 months. This is why you should think about hiring a professional lease extension lawyer.
The Advantages of Using a Solicitor to Serve a Section 42 Notice
A Section 42 Notice can be served by yourself. Getting assistance from an expert solicitor, on the other hand, has numerous advantages, including:
- Experience and Expertise -Serving an incomplete and inaccurate Section 42 Notice is one of the reasons why the Notice can be dismissed in court. Lease extension lawyers have served numerous notices for a variety of clients. As a result, they are familiar with the common flaws and errors that can result in the rejection of a notice. You can be confident that your Section 42 Notice will be served flawlessly if you use a solicitor. Due to the legal participation of a solicitor, the likelihood of the lease extension being granted by the freehold is also high
- Notice-Follow Up – Solicitors can assist you in following up on the freeholder’s Counter-Notice. If the freeholder fails to serve a Counter-Notice, solicitors will advise you on the best course of action to take.
- Legal Advice The entire process of serving a Section 42 Notice is a statutory procedure. A lease extension solicitor provides you with the legal advice and assistance you need when serving the Tenant’s Notice. They will clearly explain the legal procedure for serving the Notice and will advise you on all of the details that should be included in the Section 42 notice before you can finally serve it to the freehold.
The Section 42 Notice Service Procedure
The following is a step-by-step guide to serving a Section 42 Notice.
- Lease Premium Valuation – The calculation of determining how much you will pay a freeholder for the lease extension is known as premium valuation. A Section 42 Notice should include information about your proposed lease extension premium. This premium should be valued by an RICS valuer who is specialised in this field. RICS valuers are experts at estimating the cost of a long-term lease. Your premium should not be too low. A low premium valuation is grounds for the freeholder to reject your Notice.
The following are the reasons why you should hire an RICS valuer:
- They will advise you on the best premium to include in the Tenant’s Notice.
- They assist you in determining the possibility of a premium in all circumstances.
- You will be assisted by the valuer in responding to the freeholder’s Counter-Notice.
- During negotiations with the freeholder on the payable premium, the valuer deals with all matters, until a resolution is finalised.
- Check to See if You Can Afford the Proposed Premium – As compensation for the lease extension and loss of ground rent income, you will be required to pay a premium to the freeholder. As a result, you should assess the premium valuation highlighted by your valuer to determine whether you can afford to make such a payment. Once you’ve determined that you can afford the premium, you can hire a solicitor to assist you in serving your Notice.
- Hire a Solicitor – A professional solicitor will assist you with the remaining stages of serving a Section 42 Notice, which includes the following;
- Obtaining the necessary information to demonstrate identity, address, and financial ability to pay the premium.
- Obtaining a duplicate of your lease.
- Checking your eligibility for a lease extension.
- Obtaining the freeholder’s or landlord’s home address.
- Obtain the contact information for the freeholder’s lawyer.
- Section 42 Notice Drafting – Your lawyer will also deal with the drafting a Section 42 Notice. The draught must include all of the elements required by the Leasehold Reform, Housing, and Urban Development Act of 1993. Once they have finished drafting the Notice, you will be required to sign it in the presence of a signature.
- Serving the Notice – The Section 42 Notice is ready to be served to the freeholder’s address once it has been drafted and signed. Your solicitor should handle this via special delivery or courier. This is to ensure that the freeholder has received and signed the Notice. It is critical to note that the cost of delivering the Notice is your responsibility. The landlord may also require you to send proof of your lease extension eligibility.
For more queries related to the length of the remaining lease and how much any lease extension may cost, have a lease extension valuation undertaken by an expert lease extension valuer.
What Happens After You Serve a Section 42 Notice?
The landlord has two months to respond to your request after you have served the Tenant’s Notice at the freeholder’s address and they have acknowledged receipt. The landlord’s response is captured in the Counter-Notice, with the landlord indicating his or her interest in the request. If the freeholder has rejected your Notice without giving any reason, you have the legal right to apply to a court for a Vesting Order.
If your landlord accepts your Tenant’s Notice and all necessary negotiations are completed, your solicitor will complete the new lease and deal with registering the Section 42 Notice with the Land Registry. However, you will be required to pay before this is done, such as the new lease premium, professional fees, ground rent, stamp duty, and other service charges.
Section 42 Notice Time Limits
- Section 45 Counter Notice Issuance – By law, the freeholder must serve his counternotice within two months of receiving the Tenant’s Notice. Their response should be in the form of a formal document known as a Section 45 Counter-Notice. The freehold should clearly state in this document whether they have accepted the terms of a lease extension or have declined the lease extension request. If they reject the leasehold’s section 42 notice, they must state all valid reasons for the rejection in the counter-notice, as allowed by law.
- Confirmation of Eligibility – The landlord may request proof of lease extension eligibility. They do, however, only have 21 days to request this confirmation. The leaseholder is then given 21 days to respond to this request.
- Inspection Notice – The freeholder has the right to inspect the property in question to determine its worth. This procedure, however, requires a 3-day notice and must be done in writing.
- Rejection of Tenant’s Notice – The freeholder has at least two months, but no more than six months, to provide reasons for rejecting your Section 42 Notice. During this period your surveyor will try and negotiate with the freeholder’s surveyor to reach an amicable agreement on the premium.
Section 42 Notice Fees
The fees for drafting and serving a Section 42 Notice vary depending on the solicitor. Here are some ballpark figures to help you plan your conveyancing budget.
- Valuation of a Lease Extension by a Qualified Valuer – £500 to £1000
- Leaseholders Solicitors Fee – £500 to £800 Per Person Online ID Fee – £8
- Solicitor’s Fee for the Freeholder – £800 to £1500
- Obtaining a copy of the lease for £3 Registering and copying title plans for each title for £6 Registering the Section 42 Notice at Land Registry for £20
Extra payments may also be required for services such as obtaining a Vesting Order, negotiating the lease extension premium, and completing the lease extension process. All of the cost estimates presented here include taxes.