Why Solicitors Should Use This Calculator for Lease Extensions

When completing a lease extension under the Leasehold Reform, Housing and Urban Development Act 1993 (LRHUDA 1993), solicitors must ensure fair financial adjustments between tenants and landlords. A critical aspect is apportioning ground rent to avoid overpayment by the tenant, particularly due to the landlord’s potential “double benefit” during the lease extension process. Our Ground Rent Apportionment Calculator is an essential tool for solicitors to achieve this on the date of completion, providing clarity and fairness. Here’s why it’s indispensable and why the Section 42 notice date is a crucial component that cannot be ignored.

The Problem: Double Payment of Ground Rent

In a lease extension, tenants face a unique challenge not seen in lease sales. When a tenant serves a Section 42 notice to extend their lease, the premium they pay includes compensation for the landlord’s “lost” ground rent from the notice date onward. This is calculated as the present value of the rent stream, assuming the landlord no longer receives it after the notice date. However, under the existing lease, the tenant must continue paying ground rent until the new lease (with peppercorn rent, effectively £0) takes effect on the completion date. This creates an overlap period where the tenant pays rent twice: once as actual rent and once as part of the premium.

For example, if a tenant pays £1,000 ground rent on 1 January 2025, serves a Section 42 notice on 2 January 2025, and completes the extension on 23 December 2025, they pay £975.34 in rent for the overlap period (356 days). The premium also compensates the landlord for this “lost” £975.34 (capitalised, e.g., at 6% yield), even though the landlord received it. This double benefit to the landlord disadvantages the tenant, and standard apportionment only refunds rent for the post-completion period (e.g., £21.92 for 8 days).

Why Use the Calculator?

Our calculator simplifies and enhances the apportionment process at completion, ensuring solicitors can:

• Accurately Calculate Legal Apportionment: The calculator computes the legally required adjustment for ground rent on the completion date. If rent is paid in advance, it refunds the portion for days after completion (e.g., £21.92 for 8 days post-23 December 2025). If unpaid, it calculates the amount owed for days up to completion. This ensures compliance with LRHUDA 1993, section 56, which mandates adjusting rent at completion.
• Highlight the Overlap Issue: The calculator identifies the overlap period (Section 42 notice to completion) and quantifies the ground rent paid or accrued (e.g., £975.34 for 2 January to 22 December 2025). This transparency shows the tenant’s financial disadvantage, as the landlord receives both this rent and its capitalised value in the premium.
• Propose a Fair Refund: To address the double payment, the calculator provides a hypothetical fair refund equal to the overlap rent (e.g., £975.34). While not legally required under LRHUDA 1993, this illustrates an equitable adjustment, helping solicitors advise clients on the fairness issue and explore negotiation or advocacy options.
• User-Friendly and Precise: With defaults like 1 January for the payment date and today’s date (e.g., 21 August 2025) for completion, plus automatic leap year detection, the calculator is easy to use. It provides detailed workings for both legal and hypothetical refunds, ensuring clarity for solicitors and clients.

Why the Section 42 Notice Date is Crucial

The Section 42 notice date is the cornerstone of the lease extension process and cannot be ignored when apportioning ground rent:

• Valuation Anchor: The premium is calculated as of the Section 42 notice date, assuming the landlord loses ground rent from that point onward (Schedule 13, paragraph 3). This notional loss includes rent the landlord actually receives until completion, creating the double benefit.
• Overlap Period Definition: The overlap period (Section 42 notice to completion) is where the tenant pays rent that the premium assumes is lost. Without the notice date, solicitors cannot quantify this overpayment (e.g., £975.34 for 356 days), which is essential for understanding the tenant’s financial position.
• Equity Considerations: Highlighting the overlap rent empowers solicitors to advise tenants on the inequity and consider strategies like expediting completion via tribunal (section 48) to minimize the overlap. Ignoring the notice date obscures this issue, leaving tenants disadvantaged.

Methodical Use at Completion

Solicitors should use the calculator on the completion date as follows:

• Input Data: Enter the annual ground rent (e.g., £1,000), select payment status (paid or unpaid), and use defaults (1 January 2025 for payment, 4 months prior for Section 42 notice, today for completion) or adjust as needed.
• Review Legal Adjustment: Check the legal refund (e.g., £21.92 for post-completion days) or payment due, ensuring compliance with the completion statement.
• Assess Fair Refund: Note the hypothetical fair refund (e.g., £975.34 for the overlap), which shows the amount needed to avoid double payment. Use this to inform clients of the inequity.
• Advise Clients: Explain that only the legal refund is required under LRHUDA 1993, but the fair refund highlights potential negotiation points or the need for faster completion to reduce overlap costs.

By using this calculator, solicitors ensure accurate legal apportionments while highlighting the equitable issue of double payment, empowering better client advice and potential advocacy for fairer outcomes. The Section 42 notice date is critical to quantifying this inequity, making it an essential input for any lease extension completion.