Received An S42 Notice Or A Request For A Lease Extension?
What Is An S42 Notice?
A Section 42 notice is a formal request from a tenant (leaseholder) to extend the lease on a property they own.
Length of lease is a key factor in the value and/or saleability of a leasehold property. For this reason, tenants may choose to request a lease extension. There are legal powers in place to support this process and make it easier for tenants who qualify.
Once a tenant has owned their property for two years, the law gives them the right to extend their lease by 90 years at a ‘peppercorn rent’. This means that only a nominal ground rent is paid.
In exchange, the landlord is entitled to an appropriate premium for extending the lease, as set out in the Leasehold Reform, Housing and Urban Development Act 1993.
If you are a landlord/freeholder who has been served an S42 notice, it’s important to act quickly and keep your right to negotiate the price and terms. Don’t delay – contact an expert now.
What Qualifies A Tenant To Serve A Section 42 Notice?
The tenant is qualified to serve you with a Section 42 notice if:
- they have owned the property for at least two years (as registered at the Land Registry)
- the term of the initial lease granted extended to over 21 years
- the property for which they are seeking a lease extension is residential
- the flat under the lease is not a function of a charitable housing trust.
The application can also be suspended if an application for collective enfranchisement is being considered.
How Much Will Being Served A Section 42 Notice Cost Me?
The tenant is liable for the landlord’s reasonable, professional fees from the date the tenant serves their Section 42 notice – whether or not their application is successful.
What Should I Do When I Am Served A Section 42 Notice?
If you’re a freeholder/landlord and you receive a Section 42 notice, it’s important to act quickly.
You will have two months to respond with a counter-notice, in which you must either accept or reject the claim, the terms and the price offer. If you fail to reply in time, you could find yourself obliged to adhere to the terms set out by the tenant within their Section 42 notice. This takes away your power to negotiate.
The counter-notice will allow you to respond in the following ways:
- accept the lease extension request and consent to the tenant’s terms
- accept the lease extension request but with the condition that the tenant agrees to alternative terms
- reject the request if you intend to redevelop the flat
- reject the request on the grounds of either ineligibility (based on the statutory requirements of a lease extension) or faults found in the Section 42 notice.
If your counter-notice rejects the lease price and the terms, there will be six months from the date of counter-notice provided for negotiations.
Can I Refuse To Extend The Lease On My Property?
If a tenant qualifies for a lease extension, you can’t refuse the application. However, as detailed above, you can reject the notice on the basis of the price offered, or if the lease is not eligible for extension.
The Section 42 notice is critical to the lease extension process; the tenant must ensure that it is correct. Any fault can be a basis for the Section 42 notice to be invalid.
As the landlord, you should do the same.
What Is The Legal Process?
Once you respond to the tenant with your counter-offer, the price and terms must be agreed within six months of the S42 notice being served. Solicitors on both sides will then agree the terms of the new lease
Upon agreement of the terms, there is a further four months to complete the process.
It’s crucial to seek legal assistance to ensure that:
- the lease extension request is valid
- the final price and terms are fair.
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