Leasehold Enfranchisement
Under the Leasehold Reform, Housing and Urban Development Act 1993, a group of leaseholders can compel the Landlord to sell the freehold of the building that contains the flats they own.
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Subject to the building and the leaseholders meeting certain qualifying criteria, the leaseholders have the right to purchase the freehold of the building containing their leasehold properties and its common surrounding areas. This right is known as leasehold enfranchisement and, in essence, provided that no more than 25% of the building is non-residential (common parts excluded), that at least two thirds are let on long residential leases, and that at least 50% of the qualifying tenants join together to take part in this process, then there is a strong likelihood that they would qualify.
Doing so is advantageous for leaseholders for the following reasons:
As the new Landlord, a leaseholder (with your fellow participants) would have the power to change their leases. This may be to correct things which the landlord was unwilling to do previously, or in many cases, this will be to grant each participating leaseholder a 999 year lease at nil premium.
They would usually be able to take over the management of your building by doing this (provided there is no third party management company expressed in the lease).
Selling your flat with “share of freehold” has a beneficial impact to its marketability.
There could be development potential that you may wish to effect that the previous landlord was unwilling to do.
In a nutshell, the typical process involves the leaseholders conducting a survey and serving a notice on the landlord. The landlord does the same in response. Negotiations over the price to be paid and the terms are followed by the drawing up of the lease and completion.
The area is fraught with pitfalls and strategic interplay is often required to tackle the statutory mechanisms. While the leaseholders will be seeking to acquire what they want at the cheapest price, the landlord will have the opposite motivations.
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Leasehold Enfranchisement for Landlords – FAQs
If receiving a notice such as this, it potentially means that a collective of leaseholders in the building are trying to purchase the freehold and are doing so by providing you with offer terms to do so. By law, providing the claim is valid, you are compelled to comply; you would then have two months from receipt in order to respond with a counter notice. Failing this, the leaseholders can proceed on the terms of their offer notice (or “initial notice”). It is therefore important to instruct a Solicitor and a Surveyor as soon as possible to deal with such a notice. The leaseholders must pay your reasonable legal and surveyor costs involved in this process.
Many landlords would prefer not to be compelled to sell their freehold property, depending on the circumstances, an enfranchisement can be stopped or delayed. We can for example advise on preventative measures to a potential enfranchisement claim.
If the initial notice is itself invalid, it can be rejected. For example, if the notice does not come from at least 50% of the qualifying tenants. If the notice is not critically defective, this would at most be a delaying tactic, but when the premium price is dependent on a particular valuation date, and the fact that the valuation date is frozen on the date that the offer notice is served before marriage value is to become applicable, one can begin to see how such delays can be advantageous in some circumstances.
If there are grounds to dispute the claim, then you still will want to maximise your investment. The leaseholders are only permitted to obtain the residential parts that qualify under the Act, this means that you can retain a segment of the building that you wish to keep, known as a Leaseback. The “Leaseback” must be specified in your counter-notice, or otherwise you will lose your right to claim it.
The terms of Transfer are also regulated under the legislation; you will for example, if you have other surrounding properties, wish to prevent the leaseholders from developing their freehold to the detriment of your neighbouring properties. You are able to insist on such prohibitions to development within the transfer deed.
If you have received a Section 13 Notice, or you would like advice on how best to prepare for a potential enfranchisement claim, we are happy to help.
For more information and to speak to a Leasehold Solicitor, please contact Lewis Myatt on 020 8290 0333 or email [email protected]
Leasehold Enfranchisement For Tenants – FAQs
Leaseholders can only enfranchise if both they and their building qualify. Put simply, the building must contain two or more flats and at least two thirds of those flats must be held on long leases. At least 50% of the qualifying leaseholders must participate in the enfranchisement. It is therefore now possible to improve the value of your flat, and even take control of the management of the whole building in this way.
Owning the freehold usually enables you to be in full control of your Lease’s terms. Therefore, as a side-effect of owning, you could extend your lease to 999 years without needing to pay an additional premium. If your lease has less than 70 years to run, then it will be difficult to sell as most banks will not lend to potential buyers on a short lease. It is therefore important to note, before you reach this stage, as soon as the number of years left on your lease drops below 80, the cost of extending it will start to rise more steeply. By purchasing the freehold, this may be more economically advantageous for you.
We can give you all the advice and assistance you require in order to exercise the right to collectively enfranchise or extend your lease. We will give you an estimate of the costs involved at the outset so that you are fully aware of your position before you start the process.
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