Section 45 Counter-Notice: The Landlord's Response

The Section 45 Counter-Notice is a critical milestone for a freeholder, as it formally sets out their position on the premium they require to grant a lease extension under the statutory lease extension process. The drafting of this document must be flawless, but before it is even drafted, the freeholder's solicitor must first ensure the leaseholder actually has the legal right to extend.

For a freeholder, a lease extension is an opportunity to realise the value of their asset. However, with the legal landscape undergoing continuous reform, the risk is that a freeholder makes a procedural error in their response, loses their negotiating position, and faces an expensive trip to the Tribunal.

In this article, we explain exactly what triggers a Section 45 Counter-Notice, what the notice must contain, how to value a lease extension premium, the strict statutory timeframes, and the costs involved, including the risks of having to go to the First-tier Tribunal.

Need further help? For more information on other types of lease extensions, including guides on formal lease extensions and dealing with an absent freeholder, visit our comprehensive guide to leasehold extensions.

What triggers a need for a Section 45 Counter-Notice?

The formal lease extension process follows a strict statutory order of events. To extend their lease by an additional 90 years, a leaseholder must serve the freeholder (the competent landlord) with a Section 42 Notice. This notice contains mandatory legal information, but the most important detail for the freeholder is the premium the leaseholder is proposing to pay.

Just because the Section 42 Notice proposes a specific premium does not mean you have to accept it. Receiving this notice triggers a timeline of actions you must take to protect your position:

• Serve a Preliminary Notice: Upon receiving the leaseholder's Section 42 Notice, the freeholder has a strict 21-day window to serve a preliminary notice. This request legally compels the leaseholder to provide official proof of their title (confirming they have the legal right to extend) and to pay a statutory deposit (typically 10% of the proposed premium or £250, whichever is greater).
• Order a RICS lease valuation: Once the leaseholder's right to extend is verified and the deposit is secured, the freeholder's RICS valuer will calculate a defensible counter-premium so your solicitor can draft the formal Section 45 Counter-Notice.
• Serve a Section 45 Counter-Notice: The freeholder must serve their valid Section 45 Counter-Notice by the exact date specified in the leaseholder's Section 42 Notice (which must give you a minimum of two months to respond). If you miss this statutory deadline, or if the notice is drafted incorrectly, the court can legally force you to grant the lease extension at the leaseholder's original (and often much lower) proposed premium.

What happens after the Counter-Notice is served?

Once the freeholder serves the Counter-Notice, the leaseholder has a maximum of six months to either accept the terms on offer or negotiate a formal agreement. If the Counter-Notice fully accepts the proposals in your Section 42 Notice, the negotiation phase is bypassed entirely, and you can proceed directly to completing the lease extension.

Once terms are formally agreed, a strict statutory time limit applies: you have exactly four months to complete the legal work and execute the new lease. You can read our full breakdown of how to complete a lease extension here.

What happens if the landlord rejects your offer?

It is incredibly common for freeholders to reject the opening offer and propose a higher counter-premium. As the leaseholder, you must choose whether to accept the freeholder's counter-offer (to save time and professional fees) or instruct your valuer to negotiate a lower premium.

If you decide to dispute the premium, two strict statutory deadlines immediately come into play under Section 48 of the Leasehold Reform, Housing and Urban Development Act 1993:

The 2-Month Negotiation Window

Following the date specified in the Section 45 Counter-Notice, a mandatory two-month negotiation period begins. The primary goal during this time is to find a mutually acceptable premium to avoid the high costs and delays of going to the Tribunal.

During this window, your instructed RICS surveyor will engage directly with the freeholder's surveyor to negotiate the premium. By law, neither party is permitted to apply to the Tribunal during these initial two months.

The 4-Month Tribunal Application Window

Once the initial two-month negotiation period expires, you have exactly four months remaining to apply to the First-tier Tribunal (Property Chamber). The Tribunal is the legal body responsible for determining the premium when a leaseholder and freeholder remain in dispute.

This means all Tribunal applications must be lodged no later than six months from the date the Counter-Notice was given. In conveyancing practice, your solicitor should lodge the application during the fifth month to ensure your claim is safely protected from being locked out.

What happens when there is an Intermediate Landlord?

If your block of flats has a complex ownership structure involving an intermediate landlord (often referred to as a head lease), you will still only receive a single Section 45 Counter-Notice.

Under Schedule 11 of the Leasehold Reform, Housing and Urban Development Act 1993, the "competent landlord" (usually the ultimate superior freeholder) has the exclusive statutory authority to conduct the enfranchisement proceedings on behalf of all landlords in the ownership chain. This means they alone are legally responsible for drafting and serving the Counter-Notice.

While you only deal directly with one notice, the presence of an intermediate landlord introduces the following background conveyancing mechanics:

• Statutory consultation: The competent landlord cannot act in total isolation. They have a strict legal duty to consult with the intermediate landlord before serving the Counter-Notice to ensure the intermediate leaseholder's financial interests (such as ground rent arrears and their share of the property value) are accounted for.
• A combined premium: The counter-premium proposed in the Section 45 Notice will be a single total figure. This total legally encompasses both the superior freeholder's share and the intermediate landlord's share of the lease extension premium.
• No separate veto: An intermediate landlord cannot serve their own conflicting Counter-Notice, nor can they block the competent landlord from responding to your Section 42 Notice. If the intermediate landlord is unhappy with how the premium is split, they must resolve that dispute with the freeholder separately; it does not invalidate your Counter-Notice or halt your statutory timeline.

When might there be more than one Counter-Notice?

A landlord can only serve one valid Section 45 Counter-Notice in response to a valid Section 42 Notice. However, multiple notices might appear in these specific scenarios:

If your original Section 42 Notice was legally non-compliant (e.g., missing prescribed information or served by someone who is not the qualifying leaseholder), the freeholder will serve a Counter-Notice stating that they do not admit your right to a new lease, outlining the specific reasons for the invalidity.

Under Section 46 and Section 47 of the 1993 Act, if a landlord applies to the court to challenge the validity of your notice or to assert redevelopment rights, and their application is dismissed, the court will declare their original Counter-Notice invalid and legally compel them to serve a fresh one by a specified date.

Who pays for the Section 45 Counter-Notice?

Under Section 60 of the Leasehold Reform, Housing and Urban Development Act 1993, the leaseholder is legally responsible for paying the freeholder's reasonable legal and valuation costs associated with granting the new lease. This means the leaseholder must cover the freeholder's professional fees incurred in investigating the claim, valuing the premium, and drafting the Section 45 Counter-Notice.

Can the freeholder charge any amount?

No, the law strictly states that the costs must be reasonable. A specialist leasehold solicitor will typically charge a freeholder between £700 and £2,000 EXC VAT for investigating the claim, serving the Counter-Notice, and finalising the completion.

The freeholder's solicitor will demand these legal fees, and as the leaseholder, you will be required to pay these funds on account to your own solicitor. Your solicitor will hold the money in their client account and provide a formal undertaking for costs to the freeholder's solicitor, guaranteeing that their reasonable fees will be paid upon completion.

Freeholders sometimes attempt to inflate their legal and valuation costs. However, under the 1993 Act, you only have to pay what is deemed reasonable. If the freeholder's demanded costs are excessive or duplicate work, your solicitor can challenge them. If an agreement cannot be reached, you have the right to apply to the First-tier Tribunal (Property Chamber) to have the costs formally assessed and reduced. Furthermore, the freeholder cannot use Section 60 to force you to pay their litigation costs if the case goes to the Tribunal.

Read out completre guide: What are the Freeholder's Reasonable Costs?