Tony Lewis FRICS – Chartered Surveyor

Lease Extension and Freehold Enfranchisement

Lease extension and enfranchisement are highly complex matters. You may also wish to review The Lease Advisory website. Lease is Government funded independent advice on residential leasehold. https://www.lease-advisory.org

Lease Extension

If you own a flat or are considering purchasing one then you will find that you almost certainly own, or will own, a leasehold interest rather than a freehold. Almost all flats are leasehold.

The length of the remaining lease is of particular importance. A short lease, in fact anything below 100 years, adversely affects value and the value of the flat reduces year on year as the lease term reduces. Eventually, when there is no term left it is worth nothing.

Fortunately, (most) tenants have the right to extend their lease under the terms of the Leasehold Reform Housing and Urban Development Act 1993. The Act confers on tenants the right to:

• A new lease 90 years longer than the existing remaining term
• Nil ground rent – the existing ground rent provision is done away with
• The other terms of the lease are generally maintained.

In return for extending the lease the tenant has to pay the landlord a premium to compensate the landlord for loss of ground rent, loss of reversionary interest and, in some cases, marriage value.

The Act stipulates that a 50% marriage value payment must be made when the lease term falls below 80 years. Ideally, a new lease should be sought before that time as the premium jumps sharply when marriage value is included.

When the tenant serves notice under the Act for a lease extension then a strict timetable comes into force. If agreement over the amount of the premium cannot be reached then the matter can be decided before the First tier Tribunal (Property Chamber or appealed to the Upper Tribunal.

I have extensive experience of negotiating lease extensions for both tenants and landlords across the North East and further afield. Speak to me for advice on your leasehold extension issues.

Freehold Enfranchisement

 

Flat developments

Groups of tenants can, in certain circumstances, act together to acquire the Freehold interest in their flat development from their freeholder landlord. This is a right conferred by the Leasehold Reform Housing and Urban Development Act 1993.

There are strict qualifying criteria for numbers of participants and types of tenant and it is generally necessary to set up a nominee purchaser in the form of a limited company.

The landlord and any intermediate landlord need to be compensated in accordance with the terms of the Act. The negotiations can be very complex. I have acted for groups of tenants in purchasing their freeholds from their landlords across the North East and further afield. Speak to me for advice on group enfranchisement issues.

 

Houses

The majority of houses in the North East are freehold but some are leasehold. It is important to appreciate the difference.

Houses are leasehold for a variety of reasons but a leasehold house is usually a little cheaper when new because the building plot is effectively rented rather than purchased outright. The tenant pays an annual Ground Rent. Sometimes these are fixed rate but there has been a growing trend to escalating rent review provisions, sometimes to fixed amounts but sometimes to multipliers or linked the RPI or other indices. These provisions can be onerous and cost more to buy out of by way of the premium.

Tenants of houses can (generally – subject to meeting qualification criteria) extend their lease or enfranchise (purchase) their freehold under the terms of the Leasehold Reform Act 1967. This Act has been amended and extended numerous times and its provisions are highly complex with several alternative sections under which the property falls to be valued.

I have acted for tenants in progressing claims to enfranchise their freeholds of relatively modern estate type houses and also those with older properties with unusual and unconventional lease types. Speak to me for advice on these issues.

Copyright © 2019 Tony Lewis FRICS – Chartered Surveyor