Leaseholder Rights – lease extension and enfranchisement

When you buy a leasehold property you are in fact buying the right to live there for a set number of years, rather than owning the property itself and the land on which it stands.  In other words leasehold property is in reality a long term rental.

Flat leases are commonly either for a term of 99 or 125 years, whereas leasehold houses tend to have a lease for 999 years.

Leasehold property comes in many shapes and sizes ranging from purposes built blocks of flats and houses converted in to flats to flats over shops and commercial premises.

Hethertons specialise in dealing with residential leasehold properties and are members of the Association of Leasehold Enfranchisement Practitioners (ALEP) and are registered as an approved practitioner with The Leasehold Advisory Service.

Leaseholders have been granted a number of legal rights by various statutes, which include:

  • The right to receive information from the landlord;
  • The right to be consulted in relation to any major works the landlord proposes to carry out to the property at the tenants’ expense;
  • The right of challenge service charges;
  • Where the landlord’s management is deficient, the right to apply to the Tribunal (Property Chamber) for the appointment of a new manager;
  • Where the landlord wishes to sell its interest in the property, the right of first refusal to purchase the landlord’s interest;
  • The right to vary the terms of the lease where it does not make proper provision for such things as the repair and maintenance of the building;
  • The right to demand a new extended lease from the landlord for a term of 90 years plus the remaining term of the existing lease, with the price to be agreed between the parties or in default of agreement to be determined by the Tribunal; and
  • The right to individually (if a house) or collectively (if a flat) purchase the freehold interest in the property with the price to be agreed between the parties or in default of agreement to be determined by the Tribunal.

Enfranchisement is a highly complex area of law, one which requires the assistance of a qualified specialist such as Hethertons.

Lease extensions

When it comes to leasehold property, it is preferable that there is at least 80 years left on the lease.  Anything below that can lead to problems in the mortgaging and/or sale of the property.

Most mortgage lenders are unwilling to grant a residential mortgage on a leasehold property with less than 80 years left on the lease.  Once the lease falls to that level the property is likely to diminish in value year by year, trapping the owner until the position is redressed by either collectively purchasing the freehold interest or obtaining a lease extension.

The collective purchase of the freehold is often difficult to achieve as it involves a sufficient number of flat owners willing to participate and cooperate with one another to agree and fund the purchase price.

Because of the potential difficulties that can cause, in leasehold properties with a significant number of flats it is often easier and more cost effective for an individual flat owner to simply apply for a statutory lease extension of their individual lease.

The relevant statute lays down a number of qualifying criteria for a lease extension, both in relation to the property itself and the leaseholder.

If you wish Hethertons to consider whether you qualify to extend your lease and require further details of the procedure and likely costs involved then please contact one of our specialist practitioners, namely Toby Conyers-Kelly (Dispute Resolution) or Tom Henry (Commercial Property) to discuss the position further.

Leasehold enfranchisement

The collective purchase of the landlord’s freehold interest is the best option where sufficient of the leaseholders are ready willing and able to work together to achieve that outcome.

The qualification criteria are complicated, but the key features are:

  • The qualifying flats should be in a self-contained building, but can be attached to other buildings, such as one building in a terrace;
  • The participating flat owners must be those of flats comprising no less than 50% of the total number of flats in the building, with a minimum of two participators
  • The right is exercised by a nominee purchaser (usually a property owning company set up for that purpose) on behalf of the participating and qualifying flat owners;
  • The claim is initiated by an initial notice (which fixes the date for valuation) offering a price for the freehold;
  • No binding contract is created until one is specifically entered into by the parties or a vesting order is made by the court;
  • The nominee purchaser can withdraw at any time prior to a binding contract, subject to liability for the costs of any landlord;
  • There is no obligation on the prospective participators to invite all qualifying flat owners to participate, although in most cases they will wish to have as many participators on board as possible to reduce the amount each participator has to contribute towards the purchase price and costs.
  • The initial notice triggers a strict timetable; if this is not followed by the flat owners, they will be deemed to have withdrawn, and if it is not followed by the landlord, the landlord will (if no counter notice is served) lose its right to challenge the price offered in the initial notice;
  • There is no need for a qualifying tenant to have owned their lease for any period or to have lived in the flat as their residence;
  • The right applies even though a considerable proportion of the building may be commercial – up to 25%; and
  • The freeholder may be entitled to a leaseback of ‘unsold flats’ and commercial areas.

Legal costs and valuation fees

In both lease extension and collective enfranchisement the flat owners in addition to their own legal costs and valuation fees have to pay the reasonable legal costs and valuation fees of any landlord.  Where there is more than one landlord each landlord’s costs and fees have to be paid.

Valuation and price

In most cases, Hethertons recommend that you obtain a valuation of the price to be offered (to purchase a lease extension or the freehold) from a specialist valuer that is a member of ALEP and/or registered as an approved practitioner with The Leasehold Advisory Service.

With a proven track record advising the landlords and flat owners of a range of different properties around England and Wales, Hethertons can make this complex legal process proceed to a satisfactory conclusion as smoothly as possible.

For further information or advice on any leasehold property matters please contact one of our specialist practitioners, namely Toby Conyers-Kelly (Dispute Resolution) on 01904 528217 email tck@hethertons.co.uk, or Tom Henry (Commercial Property) on 01904 528200 email th@hethertons.co.uk

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