By Samantha Bone
Any leaseholder living in one of Fitzrovia’s wide range of different properties can benefit from the unique English land-owning system and, as many would say, the peculiarly complex legislation that allows leaseholders to extend their long leases (or purchase their freehold in the case of houses) or alternatively collectively join together to purchase the freehold of their blocks of flats from the freehold owner.
Individual Lease Extensions
The legislation that controls the manner in which a leaseholder extends his own lease is the Leasehold Reform Housing and Urban Development Act 1993. By making an application to the Landlord, a leasehold owner can obtain a new lease for a term of 90 years from the term end of his existing lease at a peppercorn ground rent. A landlord cannot refuse such an application and must either negotiate the premium (cost) of the new lease with the leaseholder, or alternatively ask the body known as the Leasehold Valuation Tribunal to determine the premium. It is important for leaseholders to be aware of this opportunity, particularly as leases are wasting assets. Where a lease falls below 80 years remaining, the cost of acquiring a new lease increases due to the manner in which the premium is calculated- a term under the legislation called- marriage value.
The claim for a new lease is an important investment for leaseholders and should be considered by all, particularly where the reversion of the lease is small. A leasehold owner can only apply once he or she has owned the flat for more than 2 years and typically the process can take between 8 to 10 months to achieve. It is also important to consider such an application when either selling your flat or indeed considering purchasing a flat.
The scheme by which leasehold owners of blocks of flats can purchase the freehold is known as “collective enfranchisement”. The block must have at least 2/3 of flats owning long leases (ie over 21 years) and not less than 50% of those leaseholders must join together to participate. The advantages of this scheme are many. It enables leaseholders to control and manage their own building, put in place new 999 year leases of each flat on more favourable terms, and the scheme also may have an “investment potential” element for some of those leaseholders who participate. As indicated above, if you only require 50% of participators to participate, those participating must pay for the non-participating flats. Non-participating flats do not attract marriage value (an additional cost for the purchase of the freehold) and as such when the non-participating flats seek to apply for new lease extensions, the participating leaseholders who are now the new freeholder can obtain the windfall of the premium that is required to be paid for this new lease extension. In many cases, this will include a marriage value payment because the lease term has less than 80 years remaining.
The claim to acquire the freehold is made by applying to the freeholder and offering a price. The freeholder then serves a Notice admitting the claim, and counter-proposing a price that it feels is appropriate for the purchase of the freehold.
As in new lease claims, the leaseholders and freeholder are in a position to negotiate the price or alternatively to ask the Leasehold Valuation Tribunal to determine the price to be paid. Again, the process is likely to take between 8 to 10 months to achieve.
Leasehold enfranchisement is, therefore, an opportunity for leaseholders to make a windfall out of the statutory process of acquiring the freehold of blocks of flats from the current freeholder.
Samantha bone is a Partner and Joint Head of the Leasehold Enfranchisement Department at Wallace LLP, One Portland Place, London, W1B 1PN firstname.lastname@example.org