Statutory Lease Extensions – Section 42 Notice Lease Extension

A question often asked of lease extension solicitors is can a landlord or freeholder refuse to extend a lease? The short answer is no because the majority of leaseholders have the statutory lease extension procedure to fall back on. These rights to extend were granted under the Leasehold Reform, Housing and Urban Development Act 1993. You may need to qualify to be be entitled to extend but qualification is usually just ownership of the flat for the last 2 years.

Generally most tenants start with trying to negotiate a lease extension with their landlord or freeholder. If you cannot agree a informal lease extension with your landlord you are likely to want to commence the statutory lease extension by using the section 42 notice procedure.  This is probably the case because of course you could decide to club together with the other tenants to acquire the whole freehold of the building. This is known as “Collective Enfranchisement”. Whilst this may result in lower levels of costs for each participant (because the costs are shared) the overall level of legal and survey costs will be higher and broadly the same basis of calculation applies for your share of the freehold (i.e. if you have a short lease you will pay just as much for the premium). The main reason blocks do not act together is that you have the problem of organisation -the pace will be slower and no necessarily controllable by you – this may not suit your requirements or timescale.

Assuming that you want to progress the statutory process you are likely to need to engage a lawyer and surveyor. We are experienced with lease extension matters and can assist you through the process.

The statutory lease extension procedure is often called a section 42 notice procedure because the process is effectively commenced by sending a notice which complies with the provisions of section 42 of the Leasehold Reform, Housing and Urban Development Act 1993 to the freeholder or superior landlord (or both) and any other relevant party.

A statutory lease extension is a  structured process. Once the section 42 notice is served subsequent steps are carried out to a specific time scale and therefore once commenced it cannot be paused meaning that costs will be incurred at each stage until settled. The hope from a Tenant’s perspective is that once the process is started the Landlord/Freeholder will come to the table and negotiate in a reasonable fashion. Whilst this does happen in many cases some Landlords still make the process difficult and adversarial and try as best they can to delay the process as a negotiating ploy.

Before you serve the section 42 notice you need to consider some initial steps also.

What are the basic steps in a Statutory Lease Extension?

Preparation

We will need to make some basic investigations on the titles to ensure you are a qualifying tenant. As you need to own the property for 2 years it is not advisable to carry out any changes to the title until after the lease has been extended ( you can assign the benefit of the notice once served but this is also a difficult area and specialist advice is needed from us).

If you are an executor of a will of the previous deceased owner of the flat you can serve a notice within 2 years of the grant of probate being granted (but not after this).

If your landlord is absent and cannot be traced other steps may be required.

Valuation Advice

The next step in this process is the valuation. Although not compulsory usually you need to know what the lease extension will cost for budget purposes and if the price offered in the initial notice is pitched too low the Landlord may try to strike out the notice as invalid. You also want the valuer to be able to negotiate on the premium you have offered with confidence. It is difficult to do this if the initial figure is unrealistic.

Section 42 Notice

We are engaged at this point to serve a notice on the Landlord and any relevant parties. The notice broadly gives the Landlord two months to respond. This sets the date of valuation of the lease and stops the clock which is important if you have a lease which is coming up to 80 years.

To give you an idea of what a section 42 notice looks like you can download a copy of a precedent or template section 42 notice (however this is not for use and should not be amended or use to serve a notice without professional advice). There is no set form of the notice – the notice just needs to contain the information as required by section 42 of the Act.

It is easy to make errors even on this “simple” form and if the notice misses crucial information it is invalid – the procedure will need to be restarted and the bad news is that the Landlord’s solicitors will be entitled for their legal costs for considering the notice (and discovering it was invalid). We recently received instructions where the notice was incorrectly completed on three occasions by our client who tried to draft and serve the notice himself. This resulted in the Landlord claiming around £1,000 in additional costs. Even if the notice is not wholly defective the landlord will use any defect as a potential threat to challenge the notice which can encourage you to settle.

The second common error is service of the notice. This can can be complicated because there are various methods of service available however if incorrectly served or there is insufficient evidence of service the landlord/freehold may be able to challenge the notice in other ways.

For this reason the notice should be drafted and served by a professional firm of solicitors.

Counter Notice

The Landlord (unless absent) will serve a counter-notice within 2 months generally admitting your claim for a new lease but invariably disputing the proposed terms – normally the amount payable for the lease – the premium. Bear in mind here that there is no ability for the landlord to suggest a higher ground rent or a length of lease which is different from the 90 year statutory extension. They can (an often do) however offer this type of arrangement “without prejudice” on the side to tempt you to take their offer (a shorter lease extension with escalating ground rent).

This counter notice sets in motion the further timescales for the procedure which again need to be strictly adhered to.

Negotiations

In theory there is then a fixed period of not less than 2 nor more than 4 months to negotiate the terms. The Landlord may or may not co-operate at this point – some landlords will wait until an application is made to the tribunal before engaging with your surveyor. Quite often however this period is when a deal is agreed. Your surveyor is normally engaged at this point to negotiate.

Application to the Tribunal

If there is no agreement a hearing must be applied for by the end of the negotiations window. This is nearly always applied for by the tenant (as the landlord hope you will let is lapse and then you will be deemed to have withdrawn and still be required to pay his fees). The application sets in motion various directions so that the parties in effect have forced negotation though the valuers and then steps are taken to set the final hearing. This is sometimes the spur for difficult landlords to start talking.

Hearing

This has to be said is rare. Most matters are settled before this point. If not it is quite often that legal points are not in issue and it is a straight shoot out between the two valuers.

Conveyancing

At any point after agreement of all the terms the conveyancing process starts. This again has a fixed timescale of effectively four months from an agreement (otherwise an application needs to be made to court to force the Landlord to cooperate). This broadly involves the agreement and preparation of the final lease extension document and payment of the monies to the Landlord. The Landlord/freeholder’s costs (he is entitled to some legal and surveys costs for dealing with the claim) are often agreed at this point.

Due to the various steps involved and the fact that different landlords approach this process in very different ways we cannot be sure how long and how much the process will take.

Statutory Lease Extensions – Solicitors Legal Costs

As we said the costs for this process are less certain. Typically however lease extensions are agreed and do not go to the final tribunal hearing. Typically you are looking at costs of £1200 + VAT in relation to our fees for the notices and conveyancing aspects but it may be helpful if you look at our attached fees guide which gives you a fixed cost for each stage with hourly rates applicable for unusual areas or steps. Basically the costs will be significantly higher if the matter proceeds all the way to a final hearing or has complicating factors.

Summary

Lease extensions and the negotiations surrounding can be tricky. It takes a team effort between the tenant, the lawyer and the surveyor. We can help with both negotiated deals and statutory lease extensions from a legal perspective.

If you want more information on our services or just want to chat through some issues please contact Mark Sadler, Solicitor on 01708 757575 or email mbs@ker.co.uk

Please bear in mind this is just a general guide and documents are provided for illustrative purposes only. It is not a statement of the law and you should take professional advice before starting on this process.