How to serve a section 42 notice - potential pitfalls and common mistakes

What is a section 42 notice

The section 42 notice is the formal notice served on your freeholder to notify them that you are extending your lease by 90 years and removing the ground rent, to replace it with a peppercorn. This is a legal right and your freeholder cannot say ‘no’, although they will frequently offer up an informal lease extension as a quicker or cheaper alternative.

The issue with informal deals is that experienced freeholders might ty to obtain payment of a lease extension premium for:

·        A short extension back up to 99 years (barely marketable) or up to 125 years (in which case it will need to be extended again)

·        Keeping the ground rent in place – which defeats the point of one of the main advantages of a section 42 notice, to remove the ground rent, such as a doubling ground rent or onerous ground rent linked to RPI

In either case, you may end up paying a similar amount to a formal lease extension without reaping the benefits. Common freeholder tactics include a requirement to accept the offer within a few weeks and encouragement to refrain from taking your own valuation advice. Our message would be to allow yourself plenty of time, and do not take advice from the freeholder, they have much to gain from you not taking your own valuation and legal advice.

Qualifying for a lease extension

Whilst it is now far easier to qualify to extend the lease following the removal of the two-year rule in 2025, it is paramount to ensure that the registered leaseholder is the party serving the notice. A full guidance note on section 42 notices can be found here

Sole owners – the notice must be given using the full name of the flat owner (or the updated name if a marriage certificate can be provided when serving the notice).

Joint owners – whether two or more, then all the joint owners must be named on the notice and it must be signed by all parties or signed on their behalf.

Companies – leases are commonly held by companies in the case of buy to let lease extensions. In this case, the notice must be signed in compliance with the comanies act 2006, usually by a director in the presence of a witness.

Overseas companies – must be signed in accordance with the laws of that country. Your leasehold lawyer should check how companies sign documents in the jurisdiction that company is based, and ensure it is validly executed under those laws. For example, an isle of man-based company can sign a notice acting by two authorised named signatories.

Brighton based solicitor Ricky Coleman states that “the first thing a freeholder’s solicitor will be looking at is whether the notice has been correctly signed by or on behalf of parties that are registered as the flat owner at the Land Registry. They may request proof of authority to sign on the leaseholders behalf. It is an expensive mistake if things go wrong, given that a statutory deposit will have been paid by the leaseholder (10% of the offer price in the claim notice) and freeholder will deduct their costs of handing the defective notice from the deposit, with the whole process then starting again.”

How to serve notice on the freeholder

It can be tricky to pin down a formal address for service on freeholders that do not comply with rules relating to service charge and ground rent demands, which must by law include an address for service of notices.

Whilst it can be tempting to serve the address shown for the freeholder on the registered freehold title at the Land Registry, at Peppercorn Law we have overseen cases where a judge has thrown this out as poor service. Strangely, there is no obligation on a landlord to update the address given on the Land Registry title, and it is often out of date.

Best practice is to serve by recorded delivery to the address shown on the most recent service charge or ground rent demand. There is also nothing to be lost in serving on the up-to-date registered office of the landlord along side this, if they are a company based in England and Wales. Ultimately, only service to an address provided by the landlord on a demand will be something you can rely on if the freeholder disputes service (which they may well do if your lease is approaching 80 years and may attract marriage value if it falls below 80 years).

Most freeholders of flats in Brighton, Hastings, Eastbourne, Worthing and Littlehampton and across Sussex use professional managing agents who will have software that automatically includes a formal address for service of notices. In the cases of a local authority freeholder such as Brighton and Hove City Council, it will be more straightforward, as they frequently provide an address for service upon request.

Do I need to serve a section 42 notice on a management company?

The classic lawyers answer – it depends!

If the management company is a third party to your lease, you absolutely must serve notice on them. If they are a right to manage company or a managing agent appointed by the freeholder, there is no need to serve a notice on them.

It can be tricky to comply with this requirement, such as in the case of a dissolved management company. The law still states that the notice must be served on it however there will be no company in existence. Specialist advice is required to ensure you do not become embroiled in allegations of invalid notices.

Extending your lease if there is a headlease

If the flat lease is subject to a headlease as well as there being a freeholder, a copy of the section 42 notice will need to be served on the headleaseholder to ensure the claim is valid. Note however that under the 1993 Act, the freeholder will conduct the lease extension on behalf of all landlords unless another landlord specifically serves a notice of separate representation.

What happens next?

The service of the s.42 claim notice is by far the most important part of the process. Once safety served, a validly signed and prepared notice will oblige your freeholder to serve a reply within two months. They must make a counter proposal of the price for the new lease, and negotiations then ensure. Terms must be agreed within six months of the counter notice date otherwise an FTT application is needed to prevent the claim being deemed withdrawn.

Where a mistake has been made, the freeholder may serve a counter notice that is served without prejudice to the validity of the claim notice. In that case, you need the input of a leasehold specialist to analyse what is being argued, before committing to further legal expenses based on the alleged invalid claim notice. In some cases it is possible to serve a new s.42 notice without too many implications.

Advice is crucial

This summarises issues that may occur when initiating a statutory lease extension claim. However, an experienced lease extension solicitor will foresee and cover off the potential issues without it being obvious that those checks are going on in the background.

A specialist leasehold solicitor will also be keeping an eye on the leasehold reforms happening in 2025, to ensure you can benefit from the removal of marriage value and landlords legal costs, once this becomes law.