17 Mar Leasehold enfranchisement explained
The latest statistics from Gov.uk says there is an estimated 4.83 million leasehold dwellings in England. This equates to 19% of the English housing stock. Just under three-quarters (72%) of the leasehold dwellings in England (3.5 million) were flats and 28% (1.3 million) were houses.
For those who own their lease, the concept of owning the property outright, without a lease, is appealing. This is where leasehold enfranchisement comes in – the legal right for leaseholders to collectively or individually purchase the freehold of their property, or extend their leases for a longer term.
Nikita Dale Lewis at HRJ Foreman Laws Solicitors delves into more detail about the leasehold enfranchisement process, and what steps are involved.
Under the Leasehold Reform, Housing and Urban Development Act 1993 (“the 1993 Act”), you will have the option to either extend your individual lease for an additional 90 years or alternatively you can jointly the acquire the freehold of the block with your neighbours which means both yourself and your neighbours will have greater control over the management of your building.
The procedure for statutory lease extensions and collective enfranchisements is largely the same under the 1993 Act.
Lease Extensions
Before a formal notice can be served on your Landlord requesting a lease extension, you will need to obtain a valuation from a surveyor who will be able to assess the likely premium payable to extend your lease.
Once you are in receipt of your valuation, we will then prepare a Section 42 Notice which will contain the premium and any new terms to be included in the new lease. Under the 1993 Act, you are only entitled to extend the lease by a further 90 years and to vary the ground rent payable to a peppercorn per annum.
The Landlord will be required to respond to your Section 42 Notice by the date specified in the notice which must be a date at least two months from the date your notice is served.
Collective Enfranchisement
To bring a claim to acquire the freehold of your building under the 1993 Act, there are various conditions that must be satisfied.
Firstly, the building must contain at least two or more flats and at least two thirds of the flats within the building must be owned by qualifying tenants.
A qualifying tenant is a tenant who holds a long lease granted for a term of more than 21 years. However please note that if you are qualifying tenant for three or more flats in the building, you will not be considered a qualifying tenant for those flats.
At least 50% of the qualifying tenants within the building must participate in the claim, however if your building only consists of two flats then both flats must be held by qualifying tenants, and both tenants must participate in the claim.
When you have established your eligibility, you will then need to obtain a formal valuation from a qualified surveyor to ascertain the potential premium that will be payable for the freehold to ensure you are paying a fair price.
Once you have established your eligibility and obtained a valuation, the first formal step of the process is to instruct a solicitor who will prepare and serve a Section 13 Notice on the Landlord. This notice will set out the details of the participating tenants, the property address and the proposed purchase price and terms for acquiring the freehold.
Enfranchisement of Houses
Owning the freehold your house means that you will have greater control over the management of your property.
To acquire the freehold of your leasehold house under the Leasehold Reform Act 1967 (‘’LRA 1967’’), the house must have a lease which was granted for a term of 21 years or more and you must be the registered proprietor of the property at the Land Registry.
To begin the process of acquiring the freehold of your house under the LRA 1967, you will need to serve a notice on the Landlord which will contain details of the tenant and the particulars of the house which the tenant wishes to acquire.
The notice will not contain the premium that you propose to pay to the Landlord, however once the notice is served, you cannot withdraw the notice of claim until the negotiation process has begun, and if you choose to withdraw your notice of claim at the negotiation stage, you will still be liable for the Landlord’s legal and valuation costs up until the date of withdrawal.
It is therefore imperative that you obtain a valuation from a qualified surveyor before serving the notice on the Landlord to ensure the potential premium for acquiring the freehold is affordable for you. The valuation will also assist you when it comes to negotiating the premium with the Landlord.
What to do if you receive a Section 5 Notice from your Landlord?
Under the Landlord and Tenant Act 1987 (‘’LTA 1987’’) a Landlord who wishes to dispose of the freehold of a building, must first serve a Section 5 Notice on the flat owners. This process is known as the ‘’Right of First Refusal’’ which essentially gives the flat owners the right of first refusal to purchase the building from the Landlord.
All flat owners within your building will have received identical Section 5 Notices from the Landlord. Before you can accept the offer, there will need to be a ‘’requisite majority’’ of qualifying tenants to accept the offer which is more than 50% of the qualifying tenants within the building.
There will be a strict deadline to respond to the Section 5 Notice therefore it is important that you discuss with the other leaseholders as soon as possible after receiving the notice.
Once you have an agreement with the other tenants to accept the offer, you will need to serve a Section 6 Acceptance Notice on the Landlord. The Section 6 Notice must comply with various requirements, therefore we strongly recommend that you instruct us to prepare and serve the notice on your behalf as soon as you come to an agreement to accept the offer to ensure there is enough time to prepare and serve the Acceptance Notice before the deadline stated in the Section 5 Notice.
Tribunal Proceedings
If the premium or terms of a lease extension or freehold acquisition cannot be agreed between the parties following service of the relevant statutory notice and counter-notice, either party can apply to the First-tier Tribunal (Property Chamber) for a determination.
The Tribunal is an independent body that will decide the price payable, and any disputed terms based on valuation evidence and the provisions of the relevant legislation. An application must be made within the strict statutory time limits, otherwise the claim may be deemed withdrawn.
In most cases, the Tribunal will issue directions for the exchange of valuation evidence before listing the matter for a hearing. However, the majority of claims settle by negotiation before a final hearing takes place.
Taking the next step
The legal framework surrounding leasehold enfranchisement is intricate and constantly evolving. It is important to work with an experienced solicitor who specialises in this area of property law and our experienced team is here to guide you through every stage of the leasehold enfranchisement process.
Meet our leasehold enfranchisement team:
- Craig Rennie, Partner and Head of Residential Property
- Saqib Khan, Associate Solicitor, Litigation
- Nikita Dale-Lewis, Solicitor, Residential Property
For more information:
For legal advice
- Email info@hrjforemanlaws.co.uk
- Call Hitchin, 01462 458711, Welwyn Garden City, 01707 887700, Old Harlow 01279 709 100.
- Complete our contact form here