Section 45 Counter Notice for Lease Extensions
The Section 45 Counter Notice is a crucial document served by a landlord (freeholder) to a leaseholder during the statutory Lease Extension Process.
This landlord's counter notice is the freeholder's official response to the leaseholder's initial Section 42 Notice, which outlines the leaseholder's proposed premium and terms for extending their lease by an additional 90 years with a peppercorn (nil) ground rent.
It sets the stage for negotiations or, if agreement can't be reached, potentially an application to the Tribunal. The freeholder is legally obligated to serve their S45 Counter Notice by a specific deadline, which must be at least two months after the Section 42 Notice was given. Key timelines following the counter notice are:
- The freeholder must serve their S45 Counter Notice on or before the date specified in part 7 of the Section 42 Notice.
- Following the Section 45 Counter Notice, the leaseholder and freeholder have a 2-month period (from the date stated in part 10 of the S45 Notice) to negotiate the terms and premium.
- If terms and premium are not agreed, the leaseholder then has a 6-month window (also from the date stated in part 10 of the S45 Notice) to make an application to the Tribunal to determine the terms and premium of the lease extension.
Key contents of a Section 45 Counter Notice
The specific information that a Section 45 Counter Notice must contain is legally prescribed within Section 45 of the Leasehold Reform, Housing and Urban Development Act 1993.
Essential details include:
- Confirmation of applicant details - The full name and address of the applicant leaseholder.
- Landlord's details - The full name and address of the landlord (freeholder) serving the notice.
- Landlord's declaration and proposals - This is the core of the Section 45 Counter Notice.
The landlord's declaration and proposals must state:
- Whether the landlord accepts that the applicant has the legal right to acquire a new lease under the Leasehold Reform, Housing and Urban Development Act 1993.
- Proposals from the Section 42 Notice the landlord accepts.
- Proposals from the Section 42 Notice the landlord does not accept.
- Details of the landlord's counter-proposals for each point they do not accept (e.g., a different premium amount or revised lease terms).
- Whether the landlord intends to make an application for an order under Section 47(1) of the Act, which asserts their intention to redevelop the premises containing the property.
Whether you're a leaseholder or freeholder, it's highly advisable to instruct a specialist solicitor to review and serve both the Section 42 and Section 45 Notices.
For a quote or to discuss your situation, you can call or email us on 0333 344 3234 (local call charges apply) / help@samconveyancing.co.uk, or Ask a Free Online Question.
The Leasehold and Freehold Reform Act 2024 was passed on the 24th May 2024, but is not yet in effect and the date for this is not yet clear. We will update our content as and when the finalised legislation is published. Read more - Expected changes
- RICS Valuers for the lease premium.
- Handling of the Section 45 Counter Notice.
- Negotiations.
- The full Lease Extension process.
- Tribunal cases.
What happens after the counter notice is served?
Once the Section 45 Counter Notice has been served, the path forward depends on whether the landlord has accepted the applicant's proposed premium and terms from the Section 42 Notice, or put forward a counter-offer (usually a higher premium.
If the terms are fully agreed at this stage, the standard statutory lease extension process continues to complete the new lease. However, if a counter-offer has been made, specific timelines apply for negotiation and potential Tribunal application:
- 2-Month Negotiation Window - From the date specified in part 10 of the Section 45 Counter-Notice, a critical 2-month period begins where both the leaseholder and freeholder are expected to negotiate the premium and terms. It's important to note that during these initial two months, neither party is permitted to make an application to the Tribunal.
- 4-Month Tribunal Application Window - Following the expiry of the initial 2-month negotiation period, the leaseholder has a further 4 months to lodge an application with the Tribunal (First-tier Tribunal, Property Chamber) if an agreement on terms and premium cannot be reached. This effectively provides a 4-month window to apply to the Tribunal, as the first two months are exclusively for negotiation.
Use the first 2 months to negotiate
Once the freeholder serves a Section 45 Counter-Notice outlining their revised proposals, the two-month negotiation period officially begins. During this time, the applicant should instruct a RICS surveyor to engage directly with the freeholder's surveyor to negotiate the premium and any other disputed terms.
It's important to understand that a surveyor will typically charge an hourly fee for these negotiations. To manage costs effectively, agree on a clear cap for the time they spend negotiating on the applicant's behalf. You can find more information on how the premium is calculated by clicking here.
Always factor in the potential additional costs of taking the case to the Tribunal if an agreement cannot be reached. These Tribunal costs, estimated to range between £2,000 and £4,000 (and potentially more for a lengthy defence), are typically borne by the leaseholder and are generally not recoverable from the freeholder at Tribunal.
What happens if the landlord rejects the offer?
One of the most common reasons for your landlord to reject the offer (and propose a different premium in their Section 45 Counter Notice) is a disagreement over the lease extension premium.
The premium you propose must always be calculated by a RICS valuer who specialises in lease extensions, as relying on informal estimates or online calculators can lead to significant discrepancies. Key reasons for a disagreement over the premium often include:
- The leaseholder used an unreliable valuation method (e.g., a desktop valuer or an online calculator) instead of a specialist RICS valuer.
- The leaseholder put forward an unreasonably low initial offer.
- The landlord did not use a RICS valuer, leading to an inflated counteroffer.
- The landlord put forward an unreasonably high counteroffer in their Section 45 Counter Notice.
Where both parties don't agree
When the leaseholder and landlord are unable to agree on the premium, both parties should ensure their respective RICS valuers communicate and discuss the methodologies behind their calculations to identify areas of disagreement or potential errors. Effective negotiation between expert valuers is often the key to finding a mutually acceptable figure; it's beneficial for both parties to find a solution without going to Tribunal.
The leaseholder has a total of 6 months from the date of the Section 45 Counter Notice to either come to an agreement with the freeholder or to lodge an application with the Tribunal (First-tier Tribunal, Property Chamber) to determine the terms and premium.
Allowing matters to run close to this deadline is risky. If an application is not lodged before the 6 months end, you will miss the statutory time limit, and will unfortunately need to start the entire formal lease extension process over again, after a 12-month waiting period which you cannot serve another Section 42 Notice.
This delay could be particularly problematic if your lease term is nearing 80 years (triggering significantly higher costs due to 'marriage value'), or if you were planning to sell or remortgage your property.
For more information on this, Section 48 of the 1993 Act has detailed implications.
- RICS Valuers for the lease premium.
- Handling of the Section 42 Notice.
- Negotiations.
- The full Lease Extension process.
- Tribunal cases.
When might there be more than one Counter Notice?
It's important to clarify that in response to a single, valid Section 42 Notice, a landlord can only ever serve one valid Section 45 Counter Notice.
However, the phrase "more than one counter notice" typically refers to two main scenarios where a landlord issues multiple responses or is ordered to serve a further counter notice:
- 1
Response to an Invalid Section 42 Notice
- The notice is served by or for a sub-tenant who is not the actual qualifying leaseholder.
- The lease itself is not considered a valid lease for a statutory lease extension claim.
- The notice does not contain all the correct information as specifically required by the Leasehold Reform, Housing and Urban Development Act 1993.
This happens if the original Section 42 Notice served by the leaseholder is found to be non-compliant or 'invalid'. A Section 42 Notice might be invalid for several reasons, such as:
The freeholder should respond by serving an invalid Section 45 Counter Notice. This response will formally state that the Section 42 Notice is invalid and fails to meet the requirements of the Act, outlining the specific reasons for its invalidity.
For instance, an invalid Section 45 Counter Notice may state that the landlord does not admit that the tenant has the statutory right to a new lease, or that they do not admit the initial Section 42 Notice was validly given. Often, the most common reasons for an invalid Section 42 relate to the leaseholder's qualification criteria under the Act.
- 2
Court Orders a Further Counter-Notice After an Application is Dismissed
- This scenario is governed by Section 46 of the 1993 Act.
- If the landlord's application challenging the validity of the tenant's Section 42 notice is dismissed by the court, the court will declare the landlord’s initial counter-notice to be of no effect and will require the landlord to issue a further counter-notice by a specified date.
- This scenario is covered by Section 47 of the 1993 Act.
- If the landlord's application for an order to defeat the tenant’s claim on the grounds of redevelopment is dismissed by the court (or withdrawn, or no application is made within the specified period), the court will declare the landlord’s original counter-notice invalid and require the landlord to give a further counter-notice to the tenant within two months of the appropriate date.
There are specific occasions where a further Section 45 Counter Notice will be served. This occurs if an application made to the Court by the landlord is dismissed, and the Court then orders a new Counter Notice to be served:
Landlord's application over the validity of the tenant's notice is dismissed
Landlord's application to redevelop is dismissed
Top tip: Weigh up the costs of negotiating with the landlord
If there is a significant difference between your RICS valuer's proposed premium and the landlord's counter-offer (especially if it's more than £5,000), spending money on negotiation through your surveyor can be a wise investment.
However, a RICS valuer's hourly charge can typically range from £150 to £300 EXC VAT, and these professional fees can sometimes run to a substantial amount, potentially even exceeding the difference you are trying to save. Always set a clear cap for your surveyor's negotiation time to manage these expenses effectively.
If an agreement cannot be reached through negotiation, the next step is typically to apply to the Tribunal (First-tier Tribunal, Property Chamber) to resolve the disputed premium and terms.
While it is sometimes possible for your Tribunal attendance costs to be deducted from the premium payable to the landlord if you are successful, this is not always guaranteed.
You must carefully weigh up all potential Tribunal costs against the potential savings before deciding to proceed. If you need negotiation help from your SAM surveyor, give us a call on 0333 344 3234 (local call charges apply).
- Fixed Fees.
- Leasehold Specialist Solicitors.
- RICS Surveyor Negotiations.
- Complicated jargon made simple.
- Preparation and serving of Section 42 Notice.
Andrew started his career in 2000 working within conveyancing solicitor firms and grew hands-on knowledge of a wide variety of conveyancing challenges and solutions. After helping in excess of 50,000 clients in his career, he uses all this experience within his article writing for SAM, mainstream media and his self published book How to Buy a House Without Killing Anyone.
Caragh is an excellent writer and copy editor of books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey, property law and mortgage-related articles.
