Lease Extensions & Collective Enfranchisement (Freehold Purchase) for Leaseholders
As a matter of law, subject to certain qualifying criteria, long leaseholders of flats are able to acquire the freehold interest to their block or conversion.
There are two main factors that drive long leaseholders to seek to become co-owners of the freehold.
1. As a lease draws close to a period of 80 years remaining, it becomes increasingly more difficult to sell the property. Leaseholders attempting to sell in this position are often pressurised into obtaining a lease extension in order to sell the property. By contrast a flat with a share of the freehold, will be easier to sell and will always attain a higher price.
2. Many leaseholders perceive their freeholders to be unscrupulous. They believe that service charge demands in respect of insurance, management fees and repairs are excessive. Whilst the law has changed to protect leaseholders from such practices, a number of leaseholders feel with some justification, that the only option to provide long-term protection and security, is to purchase the freehold collectively.
The rules relating to qualification have been amended to help more leaseholders become joint owners of their freehold.
In brief at least 50% of the long leaseholders within a block or converted house must be in agreement to acquire the freehold (if there are only two flats in the block or converted house, then both leaseholders must be in agreement). In addition at least two-thirds of the flats must be sold on long leases. These are the two main considerations, although there are other factors that may need to be taken into account.
The valuation issues are fairly complex, but briefly the landlord (freeholder) is entitled to compensation for:
- Loss of the ground rent income, which is payable under the terms of the lease.
- Loss of the right to the reversionary interest at the expiration of the lease. That is to say the right to receive the flat back at the end of the original lease.
- Where the lease has less than 80 years to run, under current legislation, the landlord is entitled to a 50 % share of any additional value (Marriage Value), which results from the merging together of the respective leasehold & freehold interests. The Marriage Value will increase for every year that passes, once the lease has reduced to 80 years unexpired.
There is an additional head of claim entitled “other losses”. Generally most claims will not provide for any compensation to be paid under this heading. However there may be instances where for example the landlord has retained part of property, for example the roof space, or an outbuilding, or maybe he has retained a flat within the development. Any such issues and others will need to be considered.
Why Act Now?
Because as time progresses the freeholder’s interest will escalate in value, whilst the leaseholder’s interests will fall in value. Moreover any increase in value due to house price inflation, will as the lease shortens have to be shared disproportionally in the freeholder’s favour.
Moreover if the leaseholders are being, or are likely to be exposed to excessive service charges, an early acquisition of the freehold will speedily avoid such costs.
At Tate Woodburn Surveyors Limited, we have been actively involved in negotiating terms for freehold transfers for several years and have an enviable record of settling contentious disputes although in the unlikely event that an amicable settlement cannot be reached with the landlord, we will happily represent you at a Leasehold Valuation Tribunal, who in the absence of agreement will determine the price to be paid for the freehold.
Our geographical area of coverage extends from our Wandsworth base in South West London, throughout London, Surrey and Kent.
For a free informal discussion please call our offices on 0208 870 1010 between 9am and 7pm, Monday to Friday. Alternatively if you prefer please direct your query to us by e-mail at email@example.com