Landlords see their freehold reversionary interests as valuable assets, but few appreciate the impact of the Leasehold Reform Act 1993 or even the fact that their tenants have a right to request freehold enfranchisement.
As a result it can come as quite a surprise when the freeholder receives the formal notice that is required to initiate the whole enfranchisement procedure.
Why? That could be because many landlords are not interested in selling their freeholds, but since 1993 the position has changed entirely now that leaseholders have been granted the right to buy the freehold of their building providing certain criteria are met – whether the freeholder agrees to a freehold sale or not.
Freehold Enfranchisement – who qualifies?
If at least half of the qualifying leaseholders wish to purchase the freehold of their residential building and two-thirds of the flats are on long leases, then in broad terms the landlord will have to sell his freehold to them. This means the price tenants will need to pay for the freehold purchase will have to be valued prior to the sale. When it comes to the price of collective enfranchisement, issues regarding valuation are quite complex but in short the landlord will be entitled to compensation from the tenants with regard to;
1. loss of ground rent income due on the lease
2. compensation for not getting the flats back at the termination of the lease
3. an additional sum known as the ‘marriage value’ – which is calculated at the rate of 50 per cent of the related increase in the value of leases as a direct result of enfranchisement – but this only applies to leases with less than 80 years to run – a good reason for tenants to try to enfranchise whilst there have more than 80 years left on the lease [it’s worth noting at this stage that some unscrupulous landlords try to delay enfranchisement, often by agreeing to voluntarily enfranchise-and thus removing the need for tenants to make a formal application- until the leases have dropped below 80 years and therefore marriage value is due].
When faced with the prospect of leaseholder enfranchisement the landlord should immediately contact specialist leasehold enfranchisement solicitors – it’s worth noting that very few property solicitors have any experience of enfranchisement. Getting such specialist advice should not cost the landlord anything as the landlord’s reasonable legal costs should be met by the leaseholders as part of the enfranchisement process.
The alternative to taking action could cost the landlord dear – failing to respond to a formal notice to enfranchise can lead to some pretty dire consequences for the landlord – including the tenants be able to force the landlord to sell in any event but at below what the landlord would otherwise be able to charge
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