Leasehold Property: Lease Extension and Enfranchisement

When a lease expires, the freeholder regains sole ownership but leaseholders and freeholders can make agreements to avoid this. Freeholders may agree to let the leaseholder buy the freehold if they pay a certain amount, therefore handing sole ownership over to the leaseholder. This is called ‘lease enfranchisement’ and simply requires the leaseholder and freeholder to agree a figure and any conditions.

Alternatively, leaseholders have the right to extend the length of their lease. Long leases must be granted for a minimum of 21 years but whereas freeholders in years gone by could add terms which unjustly made it difficult to extend or enfranchise the lease, recent legislation has made such unfair terms unenforceable.

Leasehold Property Enfranchisement

Should the freeholder agree to sell the freehold to the leaseholder, the two parties will need to negotiate a fee. This can cause argument in which case the Leasehold Valuation Tribunal may be required to step in to set a price. Enfranchisement should only include the purchase of the freehold and not the lease under the Leasehold Reform Act. The fee should take into account the value paid on the lease and the worth of the flat. Having agreed a price, a notice can be served by leaseholder or freeholder requiring completion.

The fee will need to take the marriage value into account. The value of the lease and the freehold combined exceeds the value of each on their own and the freeholder is therefore entitled to 50% of this added value. This does not apply to leases with more than 80 years remaining and is usually a fairly small value on longer leases.

Enfranchisement is generally a joint venture between various leaseholders who come together to purchase a block of flats. This can be very costly and requires total commitment because withdrawal from the process means that leaseholders must cover the other side’s legal fees for no gain. By serving a notice against the freeholder, leaseholders can demand useful information to use to help make a decision such as planning restrictions and deeds.

Collective enfranchisement requires the leaseholders to first establish a ‘Right to Enfranchise’ company; this will later assume ownership of the freehold. Such a company will be bound by the government’s Memorandum and Articles which can involve a lot of bureaucracy. Members of the company must invite all leaseholders to take part in the process and once all members are confirmed, the freeholder should be served with a notice listing all leaseholders involved and a proposed fee. The freeholder must either accept the approach or state grounds for rejecting it and should also accept or reject the offered price. This counter notice can encourage discussions of the price but if these break down the LVT may be needed to step in. The LVT can only become involved after 2 months of talks and cannot be approached 6 months after the counter notice is served.

Contracts should be exchanged within 2 months of agreeing a fee and terms and the purchaser will then receive another 2 months to apply to the court to sign over the property.

Lease Extension

A leaseholder looking to extend a lease must pay a fee to the freeholder as well. This fee will recognise the marriage value once again but also the freehold’s market value which compensates the freeholder for the time that they will be without the flat.

A similar procedure must be followed to that for enfranchisement. First of all a section 42 notice is sent to the freeholder specifying the rights of the leaseholder, the time period involved, a proposed price and the property address, to which the freeholder must reply within 2 months. When the notice is received the freeholder can visit the property to obtain their own valuation before making a decision to accept or reject (with given reasons) the offer. Discussions over a price should then take place and if the LVT is required it should be approached within the timeframe mentioned earlier.

Thinking of leasehold enfranchisement or lease extension? Contact our experts today

It can be difficult to find genuine leasehold property specialists but the dedicated team here at Bonallack & Bishop has the expertise needed to help with your enfranchisement or extension query. Our team only deals with lease extension, freehold purchase and right to manage company formation cases – so they are genuine specialists in this field

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