Leasehold Extension Section 45 Counter Notice - What happens next?
04/08/2020
During the formal lease extension process a section 45 notice is served by a landlord on the tenant (leaseholder) in response to their section 42 notice. In the leaseholder's section 42 notice, they confirm the premium they wish to pay the freeholder to extend their lease by the statutory 90 years with a peppercorn ground rent (no ground rent).
The Freeholder has until the date in the section 42 notice to respond and this must be a date falling not less than two months after the date of the giving of the notice. Here are some other important dates to note:
- The freeholder must serve their s45 Counter Notice on or before the date stated in part 7 of the Section 42 Notice
- The leaseholder and freeholder have 2 months after the date stated in part 10 of the Section 45 Counter-Notice to negotiate the terms and premium
- The leaseholder has 6 months after the date stated in part 10 of the Section 45 Counter-Notice to make an application to the Tribunal to determine the terms/premium of the lease extension
Section 45 Counter Notice Template
The content contained within the counter-notice is set out within the Leasehold Reform Housing and Urban Development Act 1993 Part I Chapter II Section 45 - Landlord’s counter-notice and it states the tenant's notice must:
-
1
Full name and address of the applicant leaseholder
-
2
Full name and address of the landlord
-
3
Landlord's declaration
- If the applicant has the right to acquire a new lease under the Leasehold Reform, Housing and Urban Development Act 1993
- Details of what the landlord accepts from the section 42 notice
- Details of what the landlord doesn't accept from the section 42 notice
- Details of the landlord's counter-notice to each point they don't accept
- Details if the landlord intends to make an application for an order under section 47(1) of the Act on the grounds that he or she intends to redevelop premises in which the flat is contained
* You should instruct a solicitor to serve a counter notice. Call to get a fixed fee quote on 0333 344 3234 (local call charges apply)
What happens after the counter notice is served?
The counter notice will either agree to the premium and the terms of the section 42 notice, or decline and put forward a counter offer in relation to either the terms or the premium - most commonly it relates to the premium. If the terms are agreed then you follow the standard lease extension process - Formal lease extension process explained.
- The leaseholder and freeholder have 2 months after the date stated in part 10 of the Section 45 Counter-Notice to negotiate the terms and premium. During the first 2 months neither party can make an application to Tribunal to determine the premium and terms of the lease extension.
- After the first 2 months, the leaseholder has 4 months to make an application to the Tribunal to determine the terms/premium of the lease extension. Remembering that in essence you only have 4 months to actually apply to the Tribunal because you can't make an application in the first 2 months.
Use the first 2 months to negotiate
Once the freeholder serves you with a Section 45 Counter-Notice with a revised proposal then there is a two month negotiation period whereby you instruct your RICS surveyor to negotiate the premium with the freeholder's surveyor. Your surveyor will charge an hourly fee for handling the negotiations with the freeholder so make sure you set a cap for the time you want them to spend negotiating. Click to read how the premium is calculated. During negotiations make sure to factor in the additional costs set out below for going to Tribunal to assist you in finding a figure you are happy with as the costs below are paid by you and are not recoverable from the Freeholder at Tribunal. It is estimated the costs to go to Tribunal can range between £2,000 and £4,000 (it could cost more if a lengthy defence). Click to read how to negotiate a lease extension
Do you need help with a lease extension?
We can act for either the leaseholder or freeholder for a lease extension and our costs are competitive. You can call us to discuss your case on 0333 344 3234 (local call rate) or click the button below to organise a fixed fee quote.
* Specialising in lease extensions - Competitive fixed fees
What is a lease extension?
The following is a very simple summary of the statutory lease extension process:
- Leaseholder serves a Section 42 notice on the Landlord
- Landlord (freeholder) confirms the leaseholder has the legal right to extend their lease through the statutory process
- Landlord serves a section 45 notice on the leaseholder
- (if not agreed) Negotiations on the premium and potentially Tribunal if parties can't agree
- Landlord drafts new lease and leaseholder completes
What happens if your landlord rejects your offer?
The main reason for your landlord to reject your offer is the lease extension premium offered. The premium should always be calculated by a RICS valuer that specialises in lease extensions. Some of the reasons for there to be an issue over the premium are:
- leaseholder didn't use a RICS valuer - either choosing a desktop valuer or using an online calculator
- leaseholder didn't put forward a reasonable offer - often starting too low
- landlord didn't use a RICS valuer
- landlord didn't put forward a reasonable counter offer
When the leaseholder and landlord can't agree on the premium then both parties should instruct their respective RICS valuers to discuss how they calculated their premium and look to discuss where there may be errors or areas of disagreement.
The leaseholder has 6 months from the date of the counter notice to come to an agreement with the freeholder, however they shouldn't allow matters to run close to this date as an application to the Tribunal must be lodged before the 6 months ends, otherwise you miss the statutory time limit and will need to start over in 12 months' time. This process is set out here - Leasehold Reform Housing and Urban Development Act 1993 Part I Chapter II Section 48 - Applications where terms in dispute or failure to enter into new lease
When might there be more than one Counter-Notice?
There are occasions where a further Section 45 Counter Notice will be served where an application to Court is dismissed and the Court orders a new Counter Notice to be served.
Landlord's application over validity of tenant's notice is dismissed
"(4)If, however, any such application is dismissed by the court, then (subject to subsection (5)) the court shall make an order—
(a)declaring that the landlord’s counter-notice shall be of no effect, and
(b)requiring the landlord to give a further counter-notice to the tenant by such date as is specified in the order."
Landlord's application to re-develop is dismissed
"(4) Where an application for an order under subsection (1) is dismissed by the court, the court shall make an order—
(a) declaring that the landlord’s counter-notice shall be of no effect, and
(b) requiring the landlord to give a further counter-notice to the tenant by such date as is specified in the order.
(5) Where—
(a) the landlord has given such a counter-notice as is mentioned in subsection (1), but
(b) either—
(i) no application for an order under that subsection is made within the period referred to in subsection (3), or
(ii) such an application is so made but is subsequently withdrawn,then (subject to subsection (7)),
the landlord shall give a further counter-notice to the tenant within the period of two months beginning with the appropriate date."
Top tip: Weigh up the costs of negotiating with the landlord
Where the difference between the landlord's and leaseholders is in excess of £5,000, then spending money on negotiating is advisable. A RICS valuer's charge varies from £150 EXC VAT to £300 EXC VAT per hour. Costs can run to in excess of the difference between the premiums so make sure to balance the cost against the saving.
If your case cannot be resolved then you will need to go to the Tribunal to get the value of the premium resolved. If you are successful in your case then your costs for attending the Tribunal can often be deducted from the premium payable to the landlord, however this isn't always the case which is something else to weigh up before going to the Tribunal. If you need help then please give us a call on 0333 344 3234 (local call charges apply).
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