Have you considered leasehold enfranchisement?

Have you considered leasehold enfranchisement?

As a leaseholder of a flat or a house, you currently own a depreciating asset and as the term of your lease gets shorter the value of your property diminishes relative to its length and this can mean that your property is less marketable as a result as some mortgage lenders require that a lease must be of a minimum length before they are willing to fund a purchase.

Whilst you may qualify to extend your lease, the problem remains and you do not share in any appreciation in the value of your home (save for a general market increase). Ultimately, once the lease term has expired and if you have failed to extend it, ownership of your flat will revert back to the landlord.

However, subject to certain criteria, you have the right to apply to your landlord to acquire the freehold interest in the property whereupon you would acquire the control to extend your lease as you please, (subject to agreement with your co-purchasers in the case of collective enfranchisement). This is known as collective or freehold enfranchisement:

  • Freehold enfranchisement is the term used if you have a residential lease of a house and have held registered title to the lease for at least two years, you may have the right to acquire the freehold. The house must be a building that is self-contained and vertically divided from any adjoining property.
  • Collective enfranchisement is the term used where a group of residential tenants owning flats may have the right to acquire the freehold. Conditions apply and you will qualify for this right if:
    • your lease was originally granted for a term of 21 years or more;
    • there are two or more flats in your building;
    • at least two thirds of all flats are let on long leases (i.e. for a term of 21 years or more); and
    • the number of tenants participating in the purchase is at least 50 per cent of the total number of tenants in your building.
    • There is less than 25% of the floor space in the building used as commercial premises (if at all).

If you qualify, you and your co leaseholders will have the right to purchase the freehold (subject to payment of a premium) even if your landlord does not want to sell. This would normally be done through a ‘nominee purchaser’ which can be a person, one of the leaseholders, a trust or a company formed by the leaseholders.

The calculation of the premium payable by you to enfranchise your property/building will partly be based on the market value of your property at the time when you initiate the process. Given the current lower values in the property market, now may be a good time to investigate whether it would be financially beneficial to consider enfranchising your property.

In addition to the financial benefits, once you own the freehold to your property you will have complete control over it, subject to the terms of the transfer document. This may also be advantageous if you believe that there is scope to improve the management and maintenance of the building, for example, where there is an absent landlord or where you consider service charges to be unreasonable.

In a larger block of flats, it can be difficult to ensure that all parties can afford to purchase and are committed to participating in a claim to enfranchise the freehold. In these circumstances, you may want to consider exercising your legal right to assume the management of the building as an alternative and we can advise on this option which does not require the payment of a premium to the landlord.

The notion of having ownership of all parts of your own home is very appealing and a successful claim can give you security of tenure and improved control, in addition to adding value to your home.

If you are interested in exploring the possibility of acquiring your freehold, it is essential to take independent legal and specialist valuation advice at an early stage to establish if you qualify and if so what you can expect in terms of costs and a successful outcome.

If you would like to have an informal discussion about the process and how we could assist then we would be delighted to attend a meeting with you and your fellow tenants. To arrange this, simply call Richard Hemingway.

The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.