Given the complexities involved in lease extension claims, both landlords and leaseholders should immediately instruct a professional specialising in lease extensions. To ensure the process is handled correctly and efficiently, you can consult a Lease Extension Solicitor.

Timing and Requirements for a Section 45 Notice

The landlord is legally required to respond to the tenant's Section 42 notice within two months from the date it was served. Failure to serve the Section 45 notice within this statutory timeframe can have severe consequences. Specifically, if the landlord does not respond within the two-month period, the leaseholder is entitled to proceed with the lease extension on the terms set out in their Section 42 notice, potentially leaving the landlord at a disadvantage in the negotiation process.

Key Components of the Section 45 Counter-Notice

The Section 45 notice is not just a formality; it is a substantive document that must address several critical points. The key components of the notice are:

1. Admission or Denial of the Leaseholder’s Right

The counter-notice must explicitly state whether the landlord admits or denies the leaseholder’s right to extend the lease. If the landlord denies the right, they must provide specific reasons, grounded in legal argument, to justify the denial. This is rare and typically occurs if there is a misunderstanding or dispute over the eligibility of the leaseholder to claim an extension.

2. Proposals on Terms of the Lease Extension

If the landlord admits the leaseholder’s right to extend the lease, the notice must also address the proposed terms put forward in the Section 42 notice. Specifically, the landlord can either:

• Accept the leaseholder’s proposals (usually regarding the premium to be paid for the extension), or
• Reject some or all of the proposals and put forward counter-proposals.

This often leads to negotiation over the premium and other terms, such as the future ground rent and any variations to the existing lease. If the parties cannot agree on the terms, the matter can be referred to the First-tier Tribunal for determination.

3. Address for Service of Further Notices

The Section 45 notice must include a proper address in England or Wales where further notices and communications can be sent. This ensures that all subsequent correspondence is properly delivered, complying with the legal formalities of the process.

4. Impact of the Notice on Leaseholder’s Rights

Once the landlord admits the leaseholder's right to extend the lease, the admission becomes binding, except in cases where the landlord was misled or did not have access to material facts at the time the counter-notice was served. Importantly, while the admission binds the landlord to the leaseholder's right, it does not necessarily resolve disputes about the terms of the lease extension, which can still be contested.

Consequences of Failing to Serve a Section 45 Counter-Notice

If the landlord fails to serve the counter-notice within the two-month statutory period, the leaseholder gains significant leverage. The leaseholder can apply to the county court for a vesting order, which allows the lease extension to proceed on the terms outlined in the original Section 42 notice. This puts the landlord in a vulnerable position, as they lose the opportunity to negotiate more favourable terms or contest the leaseholder’s proposals.

Disputing the Section 45 Notice

Even after a counter-notice has been served, disputes may arise. Common areas of disagreement include:

• The premium to be paid for the lease extension.
• The terms of the extended lease, including any variations or improvements proposed by either party.
• Issues surrounding the structure of the building or maintenance obligations.

If the landlord and leaseholder cannot agree on these points, the First-tier Tribunal (Property Chamber) can be asked to determine the dispute. This adds a further layer of complexity, and both parties may require expert valuation and legal advice to support their case. For such disputes, it's advisable to engage with a Lease Extension Solicitor to ensure the best possible outcome.

The Role of Valuers and Negotiation

The negotiation of the premium payable for the lease extension often hinges on expert valuation evidence. Both landlords and leaseholders should seek advice from qualified RICS surveyors with experience in leasehold enfranchisement. Valuers will consider various factors, including:

• The unexpired term of the lease.
• The current market value of the property.
• The ground rent payable under the existing lease.
• The deferment rate and capitalization rate, which are critical in calculating the compensation to the landlord for the loss of future ground rent and the reversionary interest in the property.

Practical Tips for Leaseholders and Landlords

For leaseholders:

• Ensure your Section 42 notice is complete and accurate. Any errors in serving the notice can lead to delays and increased costs.
• Be aware of the two-month deadline for receiving the Section 45 counter-notice and be prepared to act if the landlord fails to respond.

For landlords:

• Respond promptly to the Section 42 notice to avoid losing control over the terms of the lease extension.
• Engage with a specialist surveyor to ensure any counter-proposals are well-founded and can be supported by valuation evidence.

Conclusion

The Section 45 counter-notice under the LRHUDA 1993 is a pivotal moment in the lease extension process. Both landlords and leaseholders must understand its significance, the deadlines involved, and the potential consequences of inaction. With expert legal and valuation advice, both parties can navigate this process to achieve a fair and legally sound outcome. For professional advice, immediately consult a Lease Extension Solicitor to guide you through the complexities of lease extension negotiations. A good solicitor should be able to quickly arrange a valuation to advise on the reasonable premium that should bepaid by the leaseholder to the freeholder.