Statutory right to extend — who qualifies
- Currently: must own the flat for at least 2 years before serving Section 42 notice (runs from Land Registry registration date)
- LFR Act 2024: removes the 2-year ownership requirement — once commenced, buyers can serve notice immediately after purchase
- Lease length: statutory right applies regardless of unexpired term — but premium is higher for shorter leases
- Exclusions: commercial leases, charitable housing trust landlords, certain pre-April 1990 converted buildings
Section 42 notice — the statutory process
- S.42 Initial Notice: served on freeholder specifying proposed premium, proposed terms (90-year extension, peppercorn ground rent), and response date (minimum 2 months)
- S.45 Counter-notice: freeholder must respond within specified period — admit right + propose terms, or deny right (rare)
- Negotiation period: typically 6 months to agree premium; unresolved cases go to First-tier Tribunal (Property Chamber) for binding determination
- Valuation frozen at notice date: serving notice early locks in the valuation — important in rising markets or post-refurbishment
- Specialist solicitor essential: incorrect service (wrong format, wrong address) invalidates the notice — use a specialist leasehold solicitor
Extension premium — valuation
- Component 1 — ground rent capitalisation: present value of lost ground rent income (small for peppercorn/low rents)
- Component 2 — reversion value (relativity): freeholder's right to property at lease expiry — less valuable where unexpired term is long
- Component 3 — marriage value (leases below 80 years): freeholder entitled to 50% of uplift in value from extension — largest cost for short leases; abolished by LFR Act 2024 once commenced
- Indicative costs (pre-abolition): 90 years remaining on £300k flat ~£5,000-£12,000; 79 years ~£15,000-£30,000; 60 years ~£40,000-£80,000
Mortgage implications of short leases
Extend before 80 years — not after
Below 80 years: marriage value raises the premium sharply. Below 70 years: most mainstream BTL lenders will not lend. Below 60 years: virtually no mainstream lender will lend at all. Act early.
- Most BTL lenders: minimum 70-85 years unexpired AT END of mortgage term — check individual lender requirements
- Short lease resale: restricted buyer pool (cash buyers, landlords prepared to extend immediately) — depresses resale value
- Section 42 notice on sale: landlord can serve notice pre-marketing and assign benefit to buyer — buyer continues extension at notice date valuation
Leasehold and Freehold Reform Act 2024
- Marriage value abolished: leaseholders below 80 years no longer pay 50% freeholder share — substantially cheaper extensions
- 2-year ownership requirement removed: buyers can serve Section 42 notice immediately after purchase
- Non-residential limit: increased from 25% to 50% — more mixed-use buildings eligible for collective enfranchisement
- Prescribed relativity tables: to be introduced by statutory instrument — standardises calculation and reduces tribunal disputes
- Commencement timetable: key provisions require commencement orders — confirm current position with specialist leasehold solicitor