If you own a flat then you are likely to have the right to extend your lease if you want to. This can either be done by informal agreement with your freeholder or through what is known as the formal or statutory route – which starts by serving a formal section 42 lease extension notice on them.
This is a notice under section 42 of the Leasehold Reform, Housing and Urban Development Act 1993. The notice advises the freeholder that you wish to extend your lease. Provided that you qualify for a lease extension, your freeholder cannot refuse your request, provided that original notice is served correctly and you stick with the rigid lease extension procedure and timetable.
Got a s42 lease extension notice question? Call our specialist solicitors on FREEPHONE 0800 1404544 for FREE initial phone advice – with no strings attached.
Drafting Your Section 42 Lease Extension Notice – Do I really need a specialist solicitor?
Yes, we firmly believe you do.
That’s because it’s really important to go through the correct procedure in serving the notice to make sure you protect your rights. But don’t just take our word for it. Here’s what the government funded Leasehold Advisory Service says:
“The legislation in relation to lease extensions does not provide a ready made form that can be used by a leaseholder to send a s.42 notice to the freeholder to ask for a lease extension.
“Therefore it is advisable to use a professional such as solicitor to draft a section 42 notice to be sent to the freeholder so as to comply with the legal requirements.”
At Bonallack & Bishop, we have what is perhaps the country’s largest leasehold extension teams with the experience to make sure the process is handled correctly – 5 people doing nothing but lease extension, freehold purchase and right to manage work. And over the last 25 years, we have helped around 10,000 people like you extend their leases or buy the freehold – and we can serve a section 42 notice on your behalf and deal with your lease extension, including registration with the Land Registry.
We are also the only solicitors recommended for lease extension work by the HomeOwners Alliance – the country’s largest organisation campaigning for and representing the nation’s homeowners.
Why extend your lease?
If you own a flat, this will usually be on a leasehold rather than freehold basis. This means that you “own” your flat only for a set period of time. As the term remaining on your lease starts to drop, your flat will slowly start to become worth less. And selling a flat with a short lease will become increasingly difficult – as the shorter your lease gets, you will find that fewer mortgage lenders may well be willing to lend money to someone wishing to buy the flat unless the lease is extended. And once the remaining lease term drops below around 60 years, you may find that it’s only those with cash who are able to buy your flat – and will probably try to do so at a considerable undervalue.
Generally speaking, you should consider extending your lease once the remaining lease term falls below 85 years. And if the that lease term is approaching 80 years, you should try to extend your lease straightaway. That’s because the premium you will need to pay to your freeholder increases significantly the moment it drops below 80 years.
Click here to read more about the advantages of Lease Extension
Lease Extension – am I eligible?
If you have owned your property for at least two years and the original lease was originally granted for more than 21 years, then you will usually qualify to extend your lease. But fortunately there is a way to avoid the two-year rule – see below.
If the property is a flat, this right to a lease extension will be for an additional 90 years. So, for example, if you currently have 81 years left on your lease, the additional 90 years granted under a statutory lease extension will leave you with a 171 year lease.
However, if we looking at a leasehold house, the additional lease will be for just 50 years,. However, you may prefer to purchase the freehold (using a process known as leasehold enfranchisement) instead of extending the lease as this is usually a better option for a house.
Click here to read more to hear about the enfranchisement of leasehold houses
Click here to read more to hear about the the lease enfranchisement of blocks
Section 42 notice assignment – how to avoid waiting for 2 years ownership before extending your lease
Apart from a voluntary or informal lease extension, the only way to get your lease extended if you haven’t already owned the property for 2 years is, when buying a property in the 1st place, to get the purchaser to issue the section 42 notice for a lease extension themselves.
There is no direct cost to the vendor in doing this – and as a result they can assign the benefit of that application over to you on completion. This means you won’t have to wait 2 years and can carry on with your lease extension, with a s42 notice already served and the procedure already underway.
The ability to assign the benefit of a section 42 notice in this way does depend, however, on the vendors themselves having owned the property for at least 2 years.
And provided the section 42 notice was correctly drafted and served in the 1st place, then the process of assigning the benefit is relatively straightforward. The selling leaseholder’s solicitors will need to prepare and execute what is known as “a deed of assignment” and then transfer, or assign, the benefit of the s42 notice over to the incoming leaseholder on completion of the purchase.
Our lease extension team regularly act for clients in the circumstances. However we are well aware that many other conveyancing solicitors have little experience of or understanding of lease extension procedure.
As a result, with our clients’ agreement, we usually suggest that we draft the section 42 notice on behalf of the vendors, and then pass it to the vendors to serve on the freeholder. As part of that package we even provide an indemnity to the vendors’ solicitors that if we have made a mistake in preparation of the notice, we are liable. We find most conveyancing solicitors are more than happy to pass this specialist work over to us. And from our client’s point of view, we know that the notice has been properly drafted by our specialist team in the 1st place.
In these circumstances, the s42 notice is normally served or after the exchange of contracts, but before completion of the purchase. There is a simple reason for this. If the vendors withdraw from the sale before exchange of contracts, but have already served a notice on the freeholder, the vendors would either have to complete the lease extension themselves, or if they withdrew, be responsible for the freeholder’s own costs as well as their own.
Getting the section 42 lease extension notice wrong – the consequences
Getting the notice drafted correctly and served on your freeholder correctly is important. Failing to do both means that your notice is invalid. So, that not only means your application to extend your lease fails, but in addition, you’re not allowed to make another s42 application to extend your lease for a further 12 months.
And that failure also means potentially wasted solicitors’ and valuation costs – for you and your freeholder – and the possibility that with a shorter lease and increased property prices, you will have to pay a larger premium for your lease extension.
That’s why it’s really important to make sure that the solicitor you appoint for your lease extension claim really understand this complex area of law.
Should I use the formal s.42 notice route to extend my lease?
As mentioned above, there are 2 alternative ways of extending your lease.
One is a simple informal agreement with your freeholder. The advantage of this is that there is no set procedure, so if you have a cooperative freeholder, you may find this is quicker.
And it also allows you to agree whatever terms the two of you can agree on. So it doesn’t have to be a 90 year extension at nil ground rent – which is standard under the statutory lease extension route. So, for example, you can agree a 25 year lease extension to make it easier to sell your flat.
But the formal lease extension route offers more protection to the leaseholder than dealing with the extension informally. That’s because using the statutory process, you are exercising a legal right which the freeholder cannot refuse. In contrast, if you come to an informal agreement, the freeholder can change their mind or increase the price they have set at any stage – and there’s nothing you can do about it, but start off by issuing a s42 notice to start the statutory route.
What’s more, if you choose the formal route, starting with a section 42 lease extension notice, then the ground rent is reduced to zero. If the extension is informal, the freeholder might want to increase the ground rent as part of the deal. Remember, with an informal lease extension, the freeholder can set the terms they wish.
With the formal route, however, you can be sure of an additional 90 years, while informally, the freeholder may only be prepared perhaps to grant a shorter extension.
And if your solicitor has correctly served your section 42 notice, but you and the freeholder can’t agree on the premium, you can refer the issue to the First-Tier Property Tribunal to decide. In contrast, if you can’t agree on a premium using the informal route, there’s nothing further you can do.
For most flat owners, the formal s42 route to extending a lease is the best way forward.
How do I extend my lease?
Although in theory you could do it yourself, like conveyancing, you would normally instruct a solicitor to handle your lease extension. If you instruct our experienced team to help you, we can handle the whole procedure from start to finish, making sure that you secure the best deal possible and that your lease extension is correctly registered with the Land Registry.
Before you start by serving your S42 notice, you need to make sure you have enough money to cover the costs. This will include:
· The premium to pay should your freeholder to extend your lease
· Your legal and Surveyor’s fees
· Your freeholder’s reasonable legal and valuation fees
· Mortgage lender’s fee for consenting to the extension
· The Land Registry fee to register the new lease
Making sure you don’t overpay for your lease extension is very important. That’s why we always recommend clients instruct a specialist lease extension surveyor. And just like solicitors, there are relatively few surveyors specialising in this area. However, our team have an informal panel of specialist valuers and we are happy to instruct 1 of them on your behalf to professionally value your lease extension.
Getting the section 42 lease extension notice right – checking your title and identifying your freeholder
We will start by checking the title to your property and the terms of your lease. We will then make sure we have identified the freeholder correctly. This could be an individual or a company. There may be a head lessor, or another freeholder, from whom your freeholder is leasing the property. If this is the case, we may need to serve notice on them as well.
We can also write to your mortgage lender, if you have one, and ask them for their consent to extend the lease.
Drafting the s42 lease extension notice
Our experienced solicitors will then draft the notice of claim itself. This will include:
· Your name
· The address of the flat
· Details of the lease
· The premium that you wish to pay for the extension. This can be viewed as an opening offer and will often be negotiated over time
· Any new lease terms that you are proposing
· The name and address of your solicitors
· The deadline for the freeholder to provide a counter-notice. A counter-notice is a reply requesting a higher premium. The deadline must be at least two months from the date of the section 42 notice
It is important that the section 42 notice is complete and accurate. If it is not, it could be invalid and the freeholder will be able to reject it, which will prevent you from making another application for a further 12 months and will also waste any existing cost you have spent.
Response to the section 42 notice – Freeholder’s enquiries
The freeholder will usually instruct their own leasehold solicitor to represent them. We may be sent enquiries to answer: for example, they may ask for a copy of your legal title. There is a deadline for us to respond of 21 days from the date of that request. We are used to dealing with these short deadlines and will make sure that the other side have all the information they need from us well within the timescale.
Conveyancing solicitors don’t usually work with these kind of strict timetables (which is more usually found in court litigation), and this is 1 of the areas where we find non-specialist solicitors often make mistakes.
The freeholder can ask for access to your flat to have a valuation carried out. They must give you at least three days’ written notice of this.
Paying a deposit
The freeholder can ask you to pay a deposit after the section 42 notice has been served. This is usually 10% of the premium you have proposed paying.
The freeholder’s counter-notice
The freeholder or their solicitor should serve a counter-notice on us within the deadline we have set. This could agree to the extension and to the premium you suggested. Alternatively, they may agree to extend the lease but in return for a higher premium.
Negotiating the premium for a section 42 lease extension
We are strong negotiators and where necessary, we, or the surveyors you appoint, can negotiate on your behalf with the freeholder’s solicitor to try and agree on the right price.
What happens if I cannot agree on the premium for a s42 lease extension?
If you have used the formal section 42 notice process to extend your lease, then you have the right to ask the First-Tier Tribunal (Property Chamber) to decide how much should be paid. This is a court that specialises in leasehold matters.
We can put together a strong case and present this to the court on your behalf. It will generally be heard by a panel that includes a legal professional and a surveyor as well as a third person, often a layperson. You will usually be notified of the decision a few weeks after the hearing.
However, fortunately the vast majority of lease extensions never make it to the First Tier Tribunal. And one of the main reasons for that is that unless there are exceptional circumstances, each party has to bear their own solicitor’s and surveyor’s costs for appearing at the tribunal, which does not come cheap. This costs implication is a very good incentive to get both sides to agree on a premium they can both live with.
Finalising your lease extension
Once the premium has been agreed, a new lease will often be drafted. It may be pretty much identical to the original lease, unless there have been any alterations to the property that need to be mentioned. The ground rent will be set at it is known as “a peppercorn”, or zero, with nothing to pay.
We will then arrange for the new lease to be registered at the Land Registry and serve any notices, for example, if there is a head lessor or further freeholder.
Help with extending your lease
The lease extension process can be complicated. Being represented by an expert leasehold solicitor means that you can be sure that the right procedure is followed and that your rights are protected.