Much has changed since the introduction of the Leasehold Reform, Housing and Urban Development Act 1993 (the Act) was introduced a full quarter century ago, not least the fact that leaseholders have never been better informed of their rights. There is a wealth of information and guidance out there, ranging from the simple to fiendishly complex. For more information, take a look at the information Peter Barry Surveyors provides on freehold enfranchisement here.
What follows is a step by step overview of the basic procedures:
- The vast majority of flats and maisonettes in UK are held on leasehold title with an overriding freeholder. Leases are typically granted for 99, 125 or 999 years and give rights (mainly occupation) along with restrictions.
- Leaseholders usually pay a service charge to their freeholder which accumulates towards maintenance and repair of the building/block. They also typically pay a ground rent to the freeholder which is simply for investment value/profit.
- The Act gives leaseholders the right to either extend their lease or acquire the freehold of their building upon meeting certain conditions and the payment of a premium to the freeholder.
- A lease extension is technically the right to a new lease equal to the number of existing years plus 90. The ground rent also reverts to a ‘peppercorn’ or zero.
- The price payable for an extension increases significantly at and below the 80-year mark as that is the point at which marriage value becomes payable.
- A simplified definition of marriage value is ‘the increase in the value of the property as a result of the lease extension, payable at 50%’. Above 80 years, not payable. At and below 80 years, payable, so obtaining an extension under the former circumstances can save thousands of pounds.
- Leaseholders can formally request an extension by (their solicitor) serving a Section 42 Notice. This secures their rights under the Act and provides a mechanism that compels the freeholder to the additional 90 years and a peppercorn ground rent, at a reasonable price.
- The normal process would be as follows:
- Surveyor produces a valuation with low, mid and high range figures.
- Solicitor serves a S.42 Notice at the low figure.
- Freeholder instructs their own surveyor and serves a S.45 Counter Notice, via their solicitor. They are given a minimum time of 2 months to do this.
- Surveyors are instructed to negotiate the premium
- Solicitors are instructed to negotiate the terms of the new lease
- Premium and lease is agreed or;
If premium or terms cannot be agreed:
- Leaseholder’s solicitor makes an application to the First Tier Tribunal (FTT)
- Matter is agreed due to the substantial costs and risk of each side going to Tribunal or;
- Each side is represented at Tribunal who make a determination.
- The leaseholder is responsible for freeholder’s reasonable valuation and legal fees but each side pays their own negotiation and Tribunal fees.
- The process for acquiring the freehold of the building is very similar to extending a lease but has different qualifying criteria;
- For example, you need to have 50% of the building participate in the claim and in the case of a building where there are 2 flats, both must participate.
- Leaseholders can also approach their freeholder informally for either an extension or to buy their freehold. However, in that scenario they have no protection under the Act. This means the freeholder can refuse, put forward an offer of a lesser number of years and/or demand an increased ground rent.