Leasehold enfranchisement refers to a process where a tenant may extend their existing lease, or buy a portion of the freehold. However, as with any legal matter, it can be complex and tricky to understand.
In this guide, you’ll find out exactly what leasehold enfranchisement is, the legal rights associated with it, how to start the process, and more.
What exactly is leasehold enfranchisement?
When you purchase a property freehold, you own the building and associated land outright; and they remain yours until you decide to sell the property on. A leasehold arrangement is very different. With any form of leasehold property, you only own it for a period of time, which is stated explicitly in the contract.
The duration of ownership can be as long as 999 years, or as short as a few years. Most are fairly long-term (between 90 and 120 years). While having less than 90 years on the lease might not seem like anything to worry about, it’s actually a fairly big issue. A leasehold property will go down in value as the lease term decreases, and anything under 90 years will adversely affect the asking price.
In 1993, the government introduced the Leasehold Reform, Housing and Urban Development Act. This gives leaseholders the right to extend the lease on their property, or purchase part of the freehold. The advantage of doing this? It means that your home is far more likely to retain its value.
How it works
Usually, a leaseholder will take the following steps to extend their lease or obtain a share of the freehold.
- Arrange an informal chat with the landlord. Often, the conversation starts between the leaseholder and the landlord, before professional third-parties are involved. This gives them a chance to informally discuss possible terms, and to ‘test the waters’ in terms of what is reasonable to request.
- Speak to a solicitor. While it’s good form to start the process with a chat with the landlord, it’s still vital to obtain professional legal advice before drafting up a contract. Many solicitors are experienced in leasehold enfranchisement, as are valuation surveyors and some estate agents.
- Serve a Section 42 notice. If the leaseholder and landlord can’t agree on terms, the leaseholder may choose to serve a Section 42 notice, with the assistance of a legal expert. This notice should indicate the price that will be paid for a lease extension.
- Valuation and deposit. Leaseholders should be aware that they may be expected to pay a deposit. This is typically either £250, or 10% of the price listed in the Section 42 notice. The landlord is likely to want to have the property revalued, and the leaseholder must grant them access to their home, in order to carry this out.
- The counter notice. The Section 42 notice will include a date by which the landlord must serve the counter notice. This should indicate if the landlord accepts the proposals laid out by the leasehold, and if not, which ones they’re rejecting.
- The negotiations. Then, like any other legal agreement, the landlord and the leaseholder enter the negotiation phase. This is usually supported by legal experts. If the landlord and the leaseholder can’t agree to the terms, then they have the right to apply to the First Tier Tribunal.
The leaseholder’s rights
The advantages of lease enfranchisement are obvious, as it ensures that the property’s value isn’t adversely impacted in the future.
Leaseholders have the right to request to extend their lease by 90 years if they’re living in an apartment, or 50 years if it’s a house. If their terms aren’t agreed to, they’re also within their rights to apply to the First Tier Tribunal or the County Court.
The law also permits more than one tenant (e.g. those living in the same block of flats) to form a group and claim the freehold of their building. However, in order to do this successfully, they’ll need to meet certain criteria.
Terms and conditions
Leaseholders should bear in mind that they can only legally ask for a lease enfranchisement if they’ve held the lease for two years or more. Also, the lease needs to be a ‘long lease’ (i.e. 21 years or over).
It’s recommended that ‘short leases’ (i.e. those below 21 years) are renegotiated before the leaseholder buys the property. This can be made a condition of the sale, and ensures that the leaseholder has the right to request an extension in the future. It is possible to purchase a property with a short lease, but the likelihood of issues arising as a result is increased.
The valuation is another important aspect of the process. This provides both parties with a realistic idea of what the property is worth, and how much should be paid to extend the lease. The overall cost of extending the lease will take into account the valuation, the amount of time left on the lease, and the cost of the annual ground rent.
By law, the leaseholder is required to pay for the valuation, and for the legal costs incurred (both theirs, and the landlord’s). All lease extensions should be carried out within a certain timeframe, which is laid out in the Leasehold Reform, Housing and Urban Development Act 1993.
It’s also useful to note that statutory lease extensions mean that ground rent is no longer payable. The only scenario in which this might be different is if the terms are negotiated directly with the landlord, and it’s agreed by both parties that ground rent will still be paid.
Most lease enfranchisements are carried out amicably, with landlord and leaseholder agreeing to terms that are beneficial for both parties. However, it is a complex legal procedure and problems can arise, which is why it is advisable to have a legal expert involved from the start. They will be able to offer guidance on vital matters such as eligibility, the current law (and leaseholder / landlord rights), the costs involved, and how to resolve any issues without the situation escalating.