Leasehold enfranchisement – How to make the most of your leasehold property
Changes to property law in the last fifty years have provided a number of options for tenants wanting to take control of their leasehold property from the landlord. In my experience, the enthusiasm of tenants to exercise the legal rights available to them has never been greater.
Tenants should make sure that they are aware of their options at the earliest possible opportunity, as putting things off can lead to increased expenses and lengthy delays should the property need to be sold. For flat leases in particular, the key date to note is the point at which the lease falls below 80 years remaining; payments to the landlord are significantly less if matters can be dealt with prior to this.
Although it is now relatively rare to find yourself as the owner of a leasehold house, there are still significant numbers in certain areas of the country. Legislation enacted in 1967 gave tenants of leasehold houses two options; the first of these allows them to apply to the landlord for an extended lease, and the second to acquire the freehold interest. Exercise of the right to an extended lease is not the common course of action, with most tenants deciding that the purchase of the freehold interest is the best option.
The changing nature of residential property in England and Wales means that a significant proportion of the population now finds themselves living in a flat. Tenants are becoming increasingly aware of the need to extend their leases in order to maintain the value of their flats, either by obtaining a lease extension from the landlord or by purchasing the freehold collectively with other tenants in the building (be it a converted house or purpose-built block). These procedures were made available by legislation introduced 1993 and modified in 2002.
For tenants who have owned their flat for at least two years, an extension to the existing lease term of a further 90 years plus the removal of the obligation to pay ground rent can be acquired from the landlord using the statutory procedure. For those tenants who do not meet the necessary qualification criteria, or for those who do but wish to have more flexibility, lease extensions can be agreed with the landlord following a period of negotiation.
I find that an informal approach to the landlord at the outset is usually worthwhile, since an offer detailing the length of the extended term, the new rent and the price payable may be made (and accepted by the tenant) without the need for formal proceedings to be commenced. It also means that the tenant might be spared the expense of instructing a surveyor to calculate the price to be paid for the lease extension, since the formal procedure requires the tenant to make a reasonable offer to the landlord at the outset.
Buying the freehold
The statutory procedure for collective purchase of the freehold is similar to the process for obtaining a lease extension via the formal route. Qualifying criteria relating to the building and the tenants must be met before a notice of claim is served on the landlord; this includes a minimum number of tenants required to participate in the purchase. Again, it is the responsibility of the tenants to propose a purchase price to the landlord.
Co-ordinating a group of tenants embarking on the collective enfranchisement route is one of the key elements of the process, and this is where teamwork between solicitor, client and surveyor comes to the fore. It is usual for the tenants to create a company to purchase the freehold interest on their behalf, with all those participating then becoming shareholders in that company; you may well have seen properties advertised with a "share in the freehold".
Right to manage
Although buying the freehold interest in a building gives tenants complete control over its management, it can be a time-consuming and costly process. The modifications made to enfranchisement law in 2002 introduced a new "right to manage", allowing tenants unhappy with the way in which their building is being managed to take responsibility for management functions (either of a landlord or management company) under their leases without having to pay a purchase price to compensate the landlord for the financial losses resulting from the loss of his freehold interest.
When the right to manage is claimed, a Right to Manage Company formed by the tenants will become solely responsible for carrying out all management functions. Acquiring the right to manage does perhaps involve the most complex procedure for tenants wishing to control their own destiny but, by appointing a solicitor to assist with detailed consideration of all of the legislation to eliminate any technical breaches that could defeat the tenants' claim, there is no argument that the landlord (or management company) can use to prevent the right to manage from being acquired successfully.