Section 42 Lease Extension Solicitors
As a leaseholder, you've likely invested a lot into making your property a home or a valuable asset. But as your lease term dwindles, you might be facing the prospect of declining property value and increasing difficulty in selling or refinancing.
The good news? A Section 42 lease extension can provide the opportunity to extend the duration of your lease, providing you with long-term security and peace of mind.
At Lawhive, our mission is to simplify the lease extension process for you, combining the convenience of our easy-to-use online platform with the expertise of a regulated law firm.
With us, you get direct access to our network of experienced property lawyers who specialise in lease extensions. They are on hand to handle all the legal aspects of a Section 42 lease extension, from service to the initial notice to negotiating with your freeholder.
Don't let the complexity of a Section 42 lease extension put you off securing your property’s future. Contact us today for a free case evaluation and discover how we can make your lease extension process smooth, affordable, and stress-free.
What is a Section 42 Lease Extension?
A Section 42 lease extension refers to a legal process under the Leasehold Reform, Housing and Urban Development Act 1993, which allows qualifying leaseholders of residential properties in the UK to extend their lease by 90 years in addition to the remaining term of their existing lease.
How long can you extend a lease under a Section 42 lease extension?
Under a Section 42 lease extension, qualifying leaseholders can extend their existing lease by an additional 90 years. For example, if you have 60 years remaining on your lease, the extension would give you a total of 150 years. However, this is slated to change to 999 years due to recently passed leasehold reforms.
Once the extension is completed, the leaseholder’s ground rent is reduced to a nominal amount, typically known as a “peppercorn rent,” effectively meaning no ground rent is payable.
Who is eligible for a Section 42 Lease Extension?
To qualify for a Section 42 lease extension, you must have owned the leasehold property for at least two years.
The property must also be held on a long lease (typically more than 21 years) and used for residential purposes.
Who isn't eligible for a Section 42 lease extension?
Commercial leaseholders are not eligible for a Section 42 lease extension under this provision. Also, leases with less than 21 years originally are not covered.
What is a Section 42 Notice?
A Section 42 Notice is a formal document that a qualifying leaseholder serves on their landlord (freeholder) to start the process of extending their lease under the Leasehold Reform, Housing and Urban Development Act 1993. This notice is the first step in the official statutory lease extension process and must include specific details such as:
The leaseholder's details.
The property address.
The proposed premium for the lease extension.
The terms under which the leaseholder is willing to extend the lease.
A deadline (at least two months) for the freeholder to respond.
Upon receiving the notice, the freeholder has to respond with a counter-notice, usually within two months. The counter-notice will either accept the terms, propose different terms, or dispute the leaseholder’s right to extend the lease.
Negotiations between the leaseholder and freeholder typically follow, and if an agreement cannot be reached, the matter may be referred to the First-tier Tribunal (Property Chamber) for resolution.
How to serve a Section 42 notice
Method of service
The Section 42 Notice must be served to the landlord following legal requirements. This typically involves delivering it by hand or sending it via registered post to make sure it is received.
Timing consideration
The notice should be served well before the current lease term falls below 80 years, as leases with shorter terms can incur higher extension premiums due to the “marriage value” factor in valuations.
What happens if my Section 42 Notice is incorrect?
If a Section 42 Notice is valid, your freeholder can insist that you reissue the notice correctly.
This means you would need to serve a new, corrected 42 Notice, effectively restarting the entire process, including any timeframes associated with the original notice.
Alternatively, freeholders may leverage errors to negotiate more favourable terms for themselves, using the threat of invalidation to extract concessions from you during negotiations.
Can I extend my lease before the two-year ownership period?
To be eligible to serve a Section 42 notice and initiate a statutory lease extension, you must have been the registered owner of the leasehold property for at least two years at the moment.
The two-year period starts from the date you are registered as the owner at the Land Registry. This means that even if you purchased the property earlier, the clock for the two-year period starts from the registration date.
If you haven't owned the property for two years but need to extend your lease, you can approach the freeholder to negotiate an informal or voluntary lease extension. Unlike the statutory Section 42 process, this doesn't require the two-year ownership period.
Alternatively, leasehold reforms passed recently include plans to abolish the two-year qualifying period.
While this hasn't come into force just yet, it is on the horizon. Therefore, it may be worth waiting for the new law to be enforced before negotiating a voluntary lease extension with your freeholder
On 24th May 2024, the Leasehold and Freehold Reform Act 2024 was passed in the House of Lords.
Primary changes to the Section 42 lease extension process include:
Removal of Marriage Value
Setting the ground rent compensation cap at 0.1% of a flat's value
Increasing the extended term from 90 years to 999 years
The allowance for leaseholders to 'buy out' their ground rent independently of the lease extension process
Abolishing the two-year qualifying period.
Having said that, while the bill has been passed, it hasn't yet come into effect and currently, there is no date for implementation.
How does the Section 42 lease extension process work?
Here’s a step-by-step guide to how the Section 42 lease extension process currently works - however this may be subject to change following leasehold reforms passed in 2024:
Confirm you meet the eligibility requirements for a Section 42 lease extension.
Get a professional surveyor to conduct a lease extension valuation. This helps determine the premium you should propose in your Section 42 notice.
Prepare the Section 42 notice.
Serve the notice to the landlord (freeholder) by hand, registered post, or the method specificied in the lease and notify any superior landlords or other parties with an interest in the property.
The landlord must serve a counter-notice within two months of receiving your Section 42 Notice.
If the landlord accepts your proposed terms, the process moves forward to formalise the extension through a deed of variation or a new lease.
Both you and the landlord typically appoint surveyors to provide independent valuations of the premium.
Surveyors or legal representatives will negotiate to agree on a fair premium based on their respective valuations and market considerations.
If an agreement on the premium and terms is reached, these will be documented and the process moves to formalising the lease extension.
The leaseholder pays the agreed premium to the landlord as part of the completion process.
The new lease or deed of variation must be registered with the Land Registry to update the official records with the extended lease terms.
If you can't agree to the terms, you may need to apply to the First-tier Tribunal (Property Chamber) for a decision.
How is the premium for a Section 42 lease extension calculated?
The premium is the amount the leaseholder pays to the freeholder (landlord) to extend the lease by an additional 90 years (at the moment) and reduce the ground rent to a nominal amount.
Loss of ground rent
The calculation begins by determining the present value of the ground rent that the freeholder will lose over the extended lease period. This involves discounting the annual ground rent payments to their present value.
The formula typically used for discounting future payments is the present value formula, which considers the annual ground rent, the discount rate (reflecting inflation and investment returns), and the remaining term of the existing lease.
Reversionary interest
Reversionary interest refers to the value of the property that the freeholder will regain at the end of the original lease term. This is the estimated value of the property as if it were to revert to the freeholder upon lease expiry.
The future value is discounted back to the present value, considering the time remaining until the lease expires and the expected property value appreciation.
Marriage value
Marriage value is the increase in the property’s market value resulting from the lease extension. It represents the added value that arises when combining the leaseholder’s and freeholder’s interests after the extension.
By law, this additional value is typically shared between the leaseholder and the freeholder, usually on a 50:50 basis. However, marriage value only applies if the remaining term of the lease is less than 80 years.
The calculation involves comparing the market value of the property with the existing lease and the market value with the extended lease. The difference represents the marriage value.
Deferment rate and capitalisation rate
The deferment rate is used to discount the future value of the reversionary interest to its present value. It reflects the expected return on property investment over the lease term.
The capitalisation rate is used to convert the annual ground rent into a present-value lump sum. It reflects the risk and return profile of the ground rent as an investment.
Standardised rates for deferment and capitalization are often used, based on market conditions and precedents from tribunal decisions. Surveyors apply these rates, using their professional judgment and market knowledge to ensure they reflect current conditions and the specifics of the property.
Do I need a solicitor for a Section 42 lease extension?
While it is not legally required to hire a property solicitor for a Section 42 lease extension, having professional legal support can significantly benefit you.
Extending your lease under Section 42 of the Leasehold Reform, Housing and Urban Development Act 1993 can be a complex and detailed process, and getting things wrong can be costly or cause delays to the process.
What are the benefits of using a solicitor for a Section 42 lease extension?
Lease extensions under Section 42 are governed by detailed legal requirements and procedures. A solicitor can help you understand your rights and obligations under this framework.
An expert solicitor can:
Provide advice tailored to your situation;
Assess your eligibility for a Section 42 lease extension;
Help you plan the best timing for your extension to maximise benefits and minimise costs;
Ensure that the Section 42 notice is accurately drafted and served correctly;
Work with qualified surveyors to get accurate valuations of the premium;
Represent your interests in negotiations with the landlord;
Draft the new lease or deed of variation;
Oversee the completion of the lease extension;
Handle registration of the new lease terms with the Land Registry;
Represent you at the First-tier Tribunal.
How long does the Section 42 lease extension process take?
A typical Section 42 lease extension can take anywhere from 6 months to over a year to complete. Having said that, certain factors can affect the duration of the lease extension process such as whether or not an agreement can be reached through negotiation.
As you might expect, tribunal proceedings can add several months to the process.
How will a Section 42 lease extension affect the value of my property?
A Section 42 lease extension can significantly enhance the value and marketability of your property.
As a result of a Section 42 lease extension, you may enjoy:
Greater security and peace of mind.
Higher sale prices.
Improved mortgageability.
A broader buyer base.
Reduction in ground rent as it is reduced to a peppercorn rent.
What are the costs involved in a Section 42 lease extension?
Extending your lease under Section 42 of the Leasehold Reform, Housing and Urban Development Act 1993 involves several costs including:
There may also be other costs such as disbursements for obtaining official copies of documents from the Land Registry and costs for postage.
Below is a table of estimated costs associated with Section 42 lease extensions, however, please be aware that these are for illustrative purposes only and may vary depending on your situation.
Cost Category | Estimated Range |
|---|
Premium | £2,000 - £50,000+ |
Leaseholder's Valuation Fees | £500 - £1,500 |
Leaseholder's Legal Fees | £1,000 - £3,000+ |
Landlord's Legal Fees | £500 - £3,000+ |
Land Registry Fees | £40 - £150 |
Why choose Lawhive for your Section 42 lease extension?
At Lawhive, we combine the efficiency of an easy-to-use tech-driven platform with the expertise of a regulated law firm to provide exceptional support for your Section 42 lease extension.
Our network of expert lease extension lawyers is on hand to manage the entire lease extension process for you, from initial consultation and notice drafting to negotiations and completion at a fraction of the cost of traditional law firms.
What's more, our innovative platform makes it easier for you to manage your case and stay informed every step of the way, giving you access online, anytime, and from anywhere, so you can handle your lease extension on your terms.
To find out more about how we can help you with your Section 42 lease extension, contact us today for a free case evaluation.