section 42

bobby22

I wanted to know the cost of issuing a section 42 notice.
I have an offer for my short lease flat but they want me to apply for a section 42 notice.
I have a letter from the freeholder with a cost of the extension, why would they need a section 42 notice too.
Any advice would be helpful.

Tom99

[FONT=Verdana, sans-serif]Sound like you are selling your flat and your buyer wants to be sure they can extend the lease without having to wait 2 years using the statutory process.

[/FONT] [FONT=Verdana, sans-serif]What usually then happens is you agree to serve a section 42 notice on your freeholder after exchange of contracts with your buyer. You then assign that notice to your buyer who takes forward and pays all the costs of the lease extension.

[/FONT] [FONT=Verdana, sans-serif]You can say to your buyer that you are happy to serve the notice but that it should be drawn up by your buyers solicitor to make sure it is a valid notice, addressed to the right person at the right address and it will include the price your buyer is offering to pay for the lease extension.

[/FONT] [FONT=Verdana, sans-serif]Point out to your buyer they will not get a 2nd chance if the notice is defective so it is in their own interest to have their solicitor draw it up.

[/FONT] [FONT=Verdana, sans-serif]That way there will be no cost to you other than a recorded delivery stamp and any extra fee your solicitor may charge for assigning the notice to your buyer.

[/FONT] [FONT=Verdana, sans-serif]Once that is sorted your buyer can then decide whether to continue informal negotiations with the freeholder or continue with the statutory route.[/FONT]

eddddy

bobby22 wrote: »

I have a letter from the freeholder with a cost of the extension, why would they need a section 42 notice too.

I guess that your letter from the freeholder states the price the freeholder would like for the lease extension - which might be ridiculously high.

However, serving a section 42 notice means that the price will be calculated using a statutory formula. So it might be much cheaper.

bobby22

Hi
I have spoken to my solicitor regarding the cost of the extension and have been advised that the amount for the new lease was fair.
As I have paid out for the valuation for the cost and am selling below the market rate to allow for the extension, I wanted to know what sort of costs I would incur serving a section 42 notice.

eddddy

bobby22 wrote: »

As I have paid out for the valuation for the cost...

I suspect that you have paid for your freeholder to have a valuation.

Is your freeholder a housing association or similar? If so it may be a 'fair' valuation.

If you have a private freeholder, the valuation is less likely to be 'fair'.

In general...

• A private freeholder's valuation will be high (because they want to be paid a lot of money).
• A leaseholder's valuation will be low (because they don't want to pay a lot of money)

The both sides argue/negotiate - and perhaps agree on a price somewhere in between.

bobby22 wrote: »

I wanted to know what sort of costs I would incur serving a section 42 notice.

A section 42 notice requires a valuation figure.

Is your buyer happy to use the freeholder's valuation (which may be high)? Or do they want a leaseholder's valuation?


In my experience...

• A leaseholder's valuation might cost £600 to £800.
• Serving a section 42 notice might cost £300 to £400.

bobby22 wrote: »

I have spoken to my solicitor regarding the cost of the extension and have been advised that the amount for the new lease was fair.

Most conveyancing solicitors don't comment on whether the cost of a lease extension is fair (because they don't know) - they normally advise you contact a RICS valuer. On what basis is your solicitor saying the valuation is fair?

Does your buyer accept that the valuation is fair?

Tom99

[FONT=Verdana, sans-serif]Your solicitor is not an expert on lease extension valuation and negotiation. You should not be taking their advice on whether a figure quoted by the freeholder is 'fair'.

[/FONT] [FONT=Verdana, sans-serif]If you want to know what a fair price is, or want to know how much a statutory extension will likely cost you need to employ a RICS surveyor but you can get a rough idea of the price for a statutory extension here:

[/FONT] [FONT=Verdana, sans-serif]https://www.lease-advice.org/calculator/[/FONT]

[FONT=Verdana, sans-serif]Ask your solicitor how much they will charge you to prepare a section 42 notice or you can ask your buyer to get their own solicitor to prepare the notice at their cost.

[/FONT] [FONT=Verdana, sans-serif]What exactly is your buyer asking for? Do they want you to complete the lease extension before you sell to them or are they just taking over the negotiations?

[/FONT] [FONT=Verdana, sans-serif]The fact they want you to serve a section 42 seems to indicate they may want to abandon whatever deal your freeholder has offered and get a better deal via the statutory route.

[/FONT] [FONT=Verdana, sans-serif]What new lease length and ground rent has your freeholder offered?[/FONT]

bobby22

The lease is 42 years so I am unable to use the calculator.

This is a copy of the letters;


Lease Extension

Thank you for your enquiry regarding a lease extension.

In order to deal with your query we will obtain a copy of the counterpart lease along with the land
registry title information. Once we have this information, a surveyor will be instructed who will
review the documentation and advise the freeholder accordingly. Their fee will be £389.00 (no
VAT).

As soon as we are in receipt of the monies we will instruct the surveyor to commence work and we will send a formal offer on behalf of the freeholder to you within 15 working days.

We look forward to hearing from you.

Then

Letter from management company

To extend the lease to 150 years with the following considerations

1. Their charge in this instance will be £68,500

2. An increase of ground rent of £75 per annum the ground rent to double on the 1st January 2030 and thereafter every 25 years ( to bring in line the ground rent as in modern leases)

3. Legal fees and Management traders limited disbursements ( whether or not the matter proceeds)

4. The freeholder reserves the right to revises theses terms should the lease extension not be completed within two months of the date of this offer.

Should you decide to proceed and to avoid unnecessary delays could you please instruct your solicitor to write direct to Management traders limited sending to them a copy of this letter and accepting the charge for the lease extension. At the same time they should let have an undertaking to be responsible for their legal fees and disbursements whether or not the matter proceeds to completion.

Tom99

bobby22 wrote: »

The lease is 42 years so I am unable to use the calculator.

This is a copy of the letters;


Lease Extension

Thank you for your enquiry regarding a lease extension.

In order to deal with your query we will obtain a copy of the counterpart lease along with the land
registry title information. Once we have this information, a surveyor will be instructed who will
review the documentation and advise the freeholder accordingly. Their fee will be £389.00 (no
VAT).

As soon as we are in receipt of the monies we will instruct the surveyor to commence work and we will send a formal offer on behalf of the freeholder to you within 15 working days.

We look forward to hearing from you.

Then

Letter from management company

To extend the lease to 150 years with the following considerations

1. Their charge in this instance will be £68,500

2. An increase of ground rent of £75 per annum the ground rent to double on the 1st January 2030 and thereafter every 25 years ( to bring in line the ground rent as in modern leases)

3. Legal fees and Management traders limited disbursements ( whether or not the matter proceeds)

4. The freeholder reserves the right to revises theses terms should the lease extension not be completed within two months of the date of this offer.

Should you decide to proceed and to avoid unnecessary delays could you please instruct your solicitor to write direct to Management traders limited sending to them a copy of this letter and accepting the charge for the lease extension. At the same time they should let have an undertaking to be responsible for their legal fees and disbursements whether or not the matter proceeds to completion.

[FONT=Verdana, sans-serif]But it is your purchaser who wants you to serve the section 42, is that correct?[/FONT]
[FONT=Verdana, sans-serif]If so what have you agreed with the purchaser, are you going to extend the lease and pay the £68,500 or is your purchaser taking on your lease and then they pay the £68,500.[/FONT]
[FONT=Verdana, sans-serif]If the later it sounds like your purchaser just wants to protect themselves against the possibility for the lease extension not proceeding as planned.[/FONT]
[FONT=Verdana, sans-serif]I don't know about the £68,500 but the other terms of the offered lease seem fair:[/FONT]

• [FONT=Verdana, sans-serif]150 yr lease is more than you will get with a statutory extension which would be 132 years[/FONT]
• [FONT=Verdana, sans-serif]Doubling ground rent every 25 yrs is probably ok, its when its every 10 years you need to worry[/FONT]
• [FONT=Verdana, sans-serif]£389 for the valuation is cheap.[/FONT]

bobby22

Yes it is the purchaser, the offer which has been made is 25% less than the asking price due to the low lease and when I accepted it was on the provision that the buyer was happy to wait the statuary two years.
I'm on a very tight budget and don't want to incur too many costs, other than the sale costs.

Tom99

bobby22 wrote: »

Yes it is the purchaser, the offer which has been made is 25% less than the asking price due to the low lease and when I accepted it was on the provision that the buyer was happy to wait the statuary two years.
I'm on a very tight budget and don't want to incur too many costs, other than the sale costs.

[FONT=Verdana, sans-serif]A 42 year lease is going to have a small pool of potential purchasers so if you having to pay a few hundred to serve a section 42 gets your a sale it will be worth it.[/FONT]
[FONT=Verdana, sans-serif]Your purchasers solicitor can draw up the section 42 for you to sign or your solicitor can do it but you will need to know from the purchaser what premium to offer in the notice.[/FONT]
[FONT=Verdana, sans-serif]Then your contract with the purchaser will say you will serve the notice after exchange of contracts.[/FONT]
[FONT=Verdana, sans-serif]If you can wait would you not get a much better price by extending the lease yourself and then selling maybe at much more the +£68,500?[/FONT]

bobby22

Unfortunately I don't have the 68k, or else I would, thanks so much for your advice.