This case study is based on a real instruction. Names, addresses and identifying details have been changed, and figures rounded, to protect client confidentiality.
The instruction
Our client owned the freehold of a purpose-built block of twelve flats in Surrey. He received a notice under section 42 of the Leasehold Reform, Housing and Urban Development Act 1993 from the leaseholder of a two-bedroom flat with 71 years unexpired, proposing a premium of £18,000.
He telephoned us the following week, having put the notice to one side. That instinct is the single most expensive mistake a freeholder can make with a section 42 notice, and it is worth explaining why.
The deadline that ends the argument
A section 42 notice must specify a date by which the landlord must respond, and that date cannot be less than two months after the notice is given. The landlord’s response is a counter-notice under section 45.
If no counter-notice is served by that date, section 49 allows the leaseholder to apply to the court for a new lease on the terms set out in their own notice — including the premium they proposed. There is no discretion to reopen the figure because the landlord was busy, away, or unaware of the consequences.
In this case that would have meant a lease granted at £18,000 against a properly assessed premium of more than double. The deadline is the whole ball game.
First: is the notice actually valid?
Before valuing anything, we check the notice. Section 42(3) prescribes what it must contain, and defects are not rare:
- the full name of the tenant and the address of the flat;
- sufficient particulars of the lease to identify it, including the date, the parties and the term;
- the premium proposed and the terms of the new lease proposed;
- the name and address of any representative appointed by the tenant;
- a date for the counter-notice not less than two months ahead.
We also check whether the tenant qualifies at all: they must be the registered owner of a lease originally granted for more than 21 years. Since February 2025 there is no longer a two-year ownership requirement, so recent purchasers can and do serve notice — a change several freeholders we act for had not registered.
A freeholder is also entitled to require a deposit of 10% of the proposed premium, or £250 if greater.
The three counter-notice options
| Option | When it applies |
|---|---|
| Admit the claim and counter-propose | The usual course. The landlord accepts the tenant is entitled and states his own premium and terms. This is what preserves the negotiation. |
| Deny the claim | Where the tenant does not qualify or the notice is invalid. The landlord must apply to court within two months to have the matter determined. |
| Admit but claim redevelopment | Under section 47, where the lease has less than five years unexpired and the landlord intends to demolish or reconstruct. Rarely available, and the conditions are strict. |
The valuation
We inspected, measured, and researched comparable evidence in the immediate area. The tenant’s figure had used a long-lease value drawn from a smaller flat in a neighbouring block and a relativity figure we considered unsupportable at 71 years.
| Element | Tenant’s proposal | Our assessment |
|---|---|---|
| Long lease (unencumbered) value | £310,000 | £355,000 |
| Relativity at 71 years | 96% | 92.5% |
| Capitalised ground rent | £1,900 | £2,300 |
| Reversion | £9,400 | £11,100 |
| Marriage value (landlord’s 50%) | £6,700 | £28,100 |
| Premium | £18,000 | £41,500 |
Almost the entire gap sits in marriage value, which is what happens below 80 years: a small movement in relativity or unencumbered value is amplified straight into the premium. Getting those two inputs right is most of the work.
The outcome
We served a counter-notice in time, admitting the claim and counter-proposing £46,000. After three months of negotiation the premium settled at £37,000 — £19,000 above the tenant’s opening proposal, and the matter never reached the tribunal.
Your costs — and why this matters now
Under section 60 of the 1993 Act a landlord may currently recover his reasonable costs of investigating the tenant’s right, valuing the interest, and the conveyancing on the new lease. Those costs are payable by the tenant.
What is not recoverable is the cost of negotiating the premium, or of any tribunal proceedings, where each side bears its own costs. That distinction surprises freeholders regularly.
It is worth being clear about the direction of travel. The Leasehold and Freehold Reform Act 2024 replaces this with a general principle that each party bears its own process costs, subject to limited exceptions. That provision is not yet in force — the Government’s consultation on enfranchisement process costs closed on 23 September 2026 and commencement awaits secondary legislation. Until it is switched on, section 60 applies as it always has.
For a freeholder with claims likely to come in, that is a real consideration in timing. It is also why we would not advise a freeholder to sit on a claim in the hope the rules improve: the costs position is moving against landlords, not towards them, and marriage value — currently payable to the freeholder on any lease below 80 years — is due to be abolished when the valuation provisions commence.
What to do on receiving a section 42 notice
- Diary the counter-notice date immediately, and work back from it. Everything else is secondary.
- Check validity and qualification before assuming the claim is good.
- Get a valuation. Opening proposals are routinely well below market, and the premium is a valuation question, not a legal one.
- Consider the deposit — 10% of the proposed premium or £250, whichever is greater.
- Serve a counter-notice even if you dispute everything. Admitting the claim while counter-proposing does not concede the money; failing to serve concedes all of it.
Frequently asked questions
What happens if a freeholder misses the counter-notice deadline?
Under section 49 of the 1993 Act the leaseholder can apply to the court for a new lease on the terms proposed in their own section 42 notice, including their proposed premium. The freeholder loses the ability to argue the figure. The deadline cannot be less than two months from service and is not extendable as of right.
Can a freeholder refuse a lease extension?
Not where the tenant qualifies and the notice is valid. The right is statutory. A freeholder can dispute qualification, dispute the notice’s validity, or in narrow circumstances claim redevelopment under section 47, but a qualifying tenant with a valid notice is entitled to the new lease. What is genuinely in issue is the premium.
Who pays the freeholder’s costs on a lease extension?
At present the leaseholder pays the freeholder’s reasonable costs of investigating the claim, valuing the interest and the conveyancing, under section 60. Negotiation and tribunal costs are not recoverable. The Leasehold and Freehold Reform Act 2024 will change this to each side bearing its own process costs, but that provision is not yet in force.
How is the premium calculated?
Under Schedule 13 it is the capitalised ground rent for the remainder of the term, plus the deferred value of the reversion, plus — where the lease is below 80 years unexpired — 50% of the marriage value. On short leases the marriage value element usually dominates, which is why the unencumbered value and relativity are so heavily contested.
Acting for freeholders
Blakes Chartered Surveyors act for freeholders, portfolio landlords, resident freehold companies and managing agents. We assess claims, prepare counter-notice valuations within the statutory timetable, and negotiate with the leaseholder’s surveyor.
For freeholder-side instructions we operate myfreehold.com — valuation by Blakes and legal work by our associate firm Arcadia Law on one instruction, covering section 42 and section 13 counter-notices, section 5 right of first refusal, disposals, informal extensions, licences and variations.
If a notice has landed, the timetable is already running. Call 020 7373 7373 or email info@blakessurveyors.com.
