4.2 Invalidating Tenant Notices: Procedural Errors

Edited by Ashley Connell

Leasehold Enfranchisement Solicitor at Hetts

Invalidation of a Section 42 Notice under LRHUDA 1993

Statutory Framework

Under the Leasehold Reform, Housing and Urban Development Act 1993 (LRHUDA 1993), a qualifying leaseholder may serve a Section 42 notice to claim a 90-year lease extension at a peppercorn rent. The notice must comply with Section 42(3), which requires specifying the premises, a proposed premium (per Schedule 13), new lease terms (including modifications under Section 57), and a counter-notice deadline (at least two months post-notice). Schedule 11 mandates details like qualifying status and lease particulars, while Schedule 12, paragraph 9 protects against invalidation for minor inaccuracies in Section 42(3) particulars, though not for omissions or substantive errors. Section 99 governs service, requiring delivery to the competent landlord or agent. Judicial interpretations demand strict compliance, with limited application of the 'reasonable recipient' test from Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749. The Leasehold and Freehold Reform Act 2024 (LFR Act 2024), effective for certain provisions from 31 January 2025, abolishes the two-year ownership requirement and Section 42(4A) for personal representatives, but core validity rules remain.

Grounds for Invalidation

1. Errors in Content

Statutory requirements under Section 42(3) and Schedule 11 demand accuracy, with courts invalidating notices for substantive flaws.

• Incorrect Counter-Notice Date: Free Grammar School of John Lyon v Secchi [1999] 3 EGLR 49 (County Court) invalidated a notice specifying too early a date, rejecting Mannai principles, as recipients are not expected to consult the Act to correct errors.
• Omissions of Essentials: Speedwell Estates Ltd v Dalziel [2001] EWCA Civ 1277 invalidated notices for missing tenancy instruments, rateable values, and occupation details under Schedule 11. Similarly, Dalziel v Speedwell Estates Ltd [2002] 02 EG 104 (Court of Appeal, under 1967 Act) treated omissions as fatal, not mere inaccuracies.
• Excessive Lease Term Proposal: Proposing a term exceeding the statutory 90 years (e.g., 999 years) fails Section 42(3)(d), potentially invalidating the notice.
• Signature Defects: Viscount Chelsea v Hirshorn [1998] 2 EGLR 90 and St Ermins Property Co Ltd v Tingay [2002] EWHC 1673 (Ch) invalidated notices signed by agents, not personally by the tenant.

2. Improper Service

Section 99 requires service on the competent landlord and third parties.

• Wrong Recipient: Lay v Ackerman [2004] EWCA Civ 13 invalidated a notice served on an incorrect landlord. Free Grammar School of John Lyon v Secchi [1999] held failure to serve all required parties means the notice is not 'given'.
• Successive Notices: Westbrook Dolphin Square Ltd v Friends Life Ltd [2014] EWHC 2433 (Ch) invalidated a second notice while the first subsisted, per Section 42(8).

3. Non-Compliance with Statutory Requirements

• Qualification Issues: Pre-LFR Act 2024, less than two years’ ownership invalidated notices (9 Cornwall Crescent London Ltd v Kensington and Chelsea RLBC [2005] EWCA Civ 324). This requirement is now abolished.
• Pending Proceedings: Schedule 12 invalidates notices if forfeiture or possession orders are active without court leave.
• Counter-Notice Analogies: Burman v Mount Cook Land Ltd [2001] EWCA Civ 1712 invalidated a Section 45 counter-notice for not admitting the right, illustrating strict statutory compliance.

4. Unrealistic Premium

A critical ground for invalidation is an unrealistic premium, which fails the Section 42(3)(b) requirement for a genuine offer calculated per Schedule 13. Courts have developed the 'elephant test' to assess realism, emphasizing a credible starting point for negotiations.

Statutory Requirements

Section 42(3)(b) mandates a proposed premium reflecting the diminution in the landlord’s interest and, pre-LFR Act 2024, any marriage value for leases under 80 years. Schedule 13 provides valuation principles, but the LFR Act 2024, effective 31 January 2025, removes marriage value and standardizes calculations, simplifying proposals. Schedule 12, paragraph 9 protects against invalidation for minor inaccuracies but not for wholly unrealistic figures, which courts view as undermining the statutory process.

Key Case Law

• Cadogan Estates Ltd v Morris [1999] 1 EGLR 59 (Court of Appeal): The leaseholder’s £100 premium was invalidated as not genuine. Stuart-Smith LJ’s 'elephant test' (“you know it when you see it”) requires a realistic figure to engage the landlord in negotiation. The court distinguished statutory notices from contractual ones under Mannai [1997], demanding stricter compliance. A grossly low offer was “so far removed from reality” it failed Section 42(3)(b).
• 9 Cornwall Crescent London Ltd v Kensington and Chelsea RLBC [2005] EWCA Civ 324: A non-genuine premium, ignoring landlord’s interest and marriage value, led to invalidation. Post-LFR Act 2024, simplified valuations may reduce such disputes, but a reasonable offer remains essential.
• Earl Cadogan v Strauss (1999) 31 HLR 1132 (County Court): A significantly undervalued premium was struck out, with the court stressing that the figure must be within a reasonable range, considering lease term and property value, to satisfy Section 42(3).
• Westbrook Dolphin Square Ltd v Friends Life Ltd [2014] EWHC 2433 (Ch): An unrealistic premium in a prior notice exacerbated procedural issues, reinforcing that a notice must facilitate negotiation.

Judicial Interpretation: The 'Elephant Test'

The 'elephant test' from Cadogan v Morris assesses whether a premium is a credible starting point. Courts consider:

• Market Context: The premium must reflect property location, lease term, and Schedule 13 principles. A £100 offer for a high-value London flat is patently unrealistic.
• Negotiation Intent: The proposal must show good faith, not a tactical lowball (Cadogan v Morris).
• Prejudice to Landlord: A grossly low premium forcing excessive valuation costs may invalidate the notice.

Unlike contractual notices, Mannai’s 'reasonable recipient' test applies sparingly, as statutory notices require clear compliance (Cadogan v Morris).

Impact of LFR Act 2024

The LFR Act 2024’s removal of marriage value and standardized valuations may reduce invalidations by simplifying premium calculations. However, the 'elephant test' persists, requiring a bona fide offer. Tribunals are likely to uphold Cadogan v Morris principles, ensuring premiums align with market realities.

Defences Available to Leaseholders

Leaseholders facing invalidity claims can employ statutory and procedural defences, particularly for unrealistic premiums.

• Schedule 12, Paragraph 9 Protection: Shields against invalidation for minor inaccuracies (e.g., slightly misjudged premium), but not gross omissions or unrealistic figures (Speedwell Estates Ltd v Dalziel [2001]).
• Waiver by Landlord: Serving a Section 45 counter-notice without challenging validity may imply waiver (Willingale v Globalgrange Ltd [2000] 2 EGLR 55).
• Reasonable Recipient Test: Limited use; Mannai [1997] may validate minor errors if intent is clear, but not for mandatory elements like premiums (John Lyon v Secchi [1999]; Burman [2001]).
• Second Notice 'Without Prejudice': A revised notice preserves the first’s validity pending resolution (Sinclair Gardens Investments (Kensington) Ltd v Poets Chase Ltd [2007] EWHC 1776 (Ch)).
• Court Application: Under Section 49, if no counter-notice is served, leaseholders can seek a vesting order (Willingale v Globalgrange Ltd). Tribunal applications under Section 48 can adjust premiums.
• Valuation Evidence: A professional valuation report bolsters reasonableness. Cadogan v Morris noted that a low but reasoned offer is less likely to be struck out. Post-LFR Act 2024, standardized valuations strengthen this defence.