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Leaseholders who have owned residential flats for more than two years are entitled to ask the landlord to extend their existing lease by a period of 90 years in return for the payment of a premium, provided certain exclusions do not apply. A leaseholder’s entitlement comes from Chapter II of the Leaseholder Reform, Housing and Urban Development Act 1993 (‘the Act’).
Section 42 notice
A leaseholder can serve a notice on their landlord, pursuant to section 42 of the Act, to start the process. A section 42 notice must be given to the landlord and any third party named in the lease and contain:
If the section 42 notice does not contain some or all of this information, it may well be invalid and the landlord can challenge the validity of the notice and the leaseholder’s right to claim for a new lease. Where an invalid notice is withdrawn, there are repercussions to the leaseholder, the details of which are explored below. However, a valid section 42 notice is only part of the battle. There are several pitfalls which, if not avoided, can lead to significant financial consequences for a leaseholder in the future.
Deemed withdrawal of a section 42 notice
There are various circumstances where a leaseholder’s section 42 notice is deemed to be withdrawn.
Where a leaseholder has served a section 42 notice and the landlord has responded by way of a counter-notice accepting the leaseholder’s right to a new lease, there is a period of 6 months from the date on which the counter-notice was given for the parties to agree the terms of the new lease. If an agreement cannot be reached, the leaseholder must apply to the First-tier Tribunal (Property Chamber) for a determination of the matters still in dispute within that 6 month period. If the leaseholder fails to do so, the section 42 notice is deemed to have been withdrawn.
Where the parties have agreed the terms of the new lease, including the premium, or the terms of acquisition have been determined by the Tribunal, the parties have a period of two months within which to complete the lease. There is a further period of two months for either party to apply to the Tribunal requiring the parties to discharge their obligations. If an application is not made within that further two month period, the section 42 notice is deemed to have been withdrawn.
Where a leaseholder has served a section 42 notice and no counter-notice has been received from the landlord, the leaseholder must apply to the court within 6 months for a determination as to the terms on which a new lease should be granted. If an application is not made within this period by the leaseholder, the section 42 notice is deemed to have been withdrawn.
Similarly, if an application to the court has been made and the court has made an order as to the terms of the new lease, the leaseholder has a period of 2 months within which to complete the lease. If the leaseholder does not do so, and fails to apply to the court within a further 2 month period, the section 42 notice is deemed to have bene withdrawn.
Consequences of withdrawal of the section 42 notice
If a section 42 notice has been withdrawn or deemed to have bene withdrawn, there are various consequences for a leaseholder.
The first consequence is that they are barred from serving a further section 42 notice for a period of 12 months from the date of withdrawal. In practical terms, this may mean that the premium that is ultimately payable to the landlord increases, especially in circumstances where the remaining term of the lease is less than 80 years.
Secondly, the leaseholder will be responsible for the landlord’s costs pursuant to section 60 of the Act. These costs could be substantial, as they include the landlord’s costs for dealing with the section 42 notice and preparing a counter-notice, the valuation fees and any costs related to the grant of the new lease (drafting etc.).
In light of the consequences of having your section 42 notice deemed to have been withdrawn, it is imperative that a firm grip is kept on the timetable, and that no crucial dates are missed.
This article is for information purposes only and is not legal advice. It should not be acted or relied upon and legal advice should be sought before applying any of the information in this article to any facts or circumstances.