The Leasehold Reform, Housing and Urban Development Act 1993 gave leasehold owners of flats two important new rights. The first allows a majority of tenants to join together to buy the freehold, exercising the right to collective enfranchisement. The second allows an individual tenant the right to a new lease, for a term 90 years longer than the existing one at a peppercorn rent. In order to decide which route to follow a tenant will first have to assess whether they qualify for a collective claim and, if a collective claim is a possibility, will then need to decide whether the advantages of purchasing your freehold outweigh the benefits of a 90 year leasehold extension.
Tenants who are faced with the question of whether to enfranchise or seek a lease extension need to consider what their main objectives are. If they are suffering from bad management, unsubstantiated service charges and their leases are significantly longer than the statutory limit of 80 years then a collective Leasehold Enfranchisement claim will be of most benefit provided that they have an organised residents association.
On the other hand, if the leases are short or are about to reach the 80 year limit and they reside in a well managed block with numerous non-resident tenants a lease extension may be the better solution. In addition, with a collective claim, time can be an issue. If there are a significant number of tenants, it can take weeks or even months for them all to agree and sign up to the necessary documentation and to pay towards a fighting fund. In contrast, a single lease extension claim can sometimes be signed within a few days of a valuation being obtained – if your freeholder is cooperative.
It is also important to remember that the options are not mutually exclusive. It is possible for a tenant to extend a lease one year and then enter into a collective claim a few years later. The tenant’s extended lease will only serve to reduce the premium payable for the freehold. Finally, tenants should also be aware that if the cost of the freehold is a problem it is possible to opt for forming a Right to Manage Company as a low cost solution to gaining control over the way that a building is run
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