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What is Leasehold Enfranchisement?
Under the Leasehold Reform Act 1967 (LRA 1967), the tenant of a house may be able to buy their freehold and any intermediate leasehold interest. This is known as Leasehold Enfranchisement.
Why should I buy my Freehold?
The lease of your house will have been granted for a certain number of years. The value of your lease will reduce as the number of years left on it decreases.
Once the term of your lease reduces past a certain number of years (in many cases, 75 years or less) it will be harder to find a mortgage company who is willing to lend against the property. This will make re-financing or selling your property increasingly difficult.
Many new Leasehold Houses have been drafted with onerous leasehold terms which many lenders have now refused to accept. In situations such as this it may be imperative for you to buy the Freehold in order to be able to sell or re-mortgage your property.
How to I qualify to buy my Freehold?
There are three criteria that you must meet in order to qualify for enfranchisement:
- You must own a long lease of the property. This will be a lease that was originally granted for a term of 21 years or more, or a lease which was granted with a right to renew.
- You must own a qualifying house. This is a property which is reasonably considered to be a house, and which does not lie over or under another property owned by somebody else. It does not matter if the property has been divided into flats, as long as you have the lease of the whole building.
- You must be a qualifying tenant. This means that you must be the leaseholder at the time of the application and that you must have owned your leasehold house for a minimum of two years. If a tenant initiates the notice procedure before selling their property, the benefit of this notice can be assigned with the sale of the property. This would allow an incoming tenant to continue with the enfranchisement procedure without having to wait two years to qualify.
What is the procedure?
Some freeholders will agree to sell their interest to a tenant without the need for a formal claim, but you should always seek professional advice before proceeding.
If a formal claim is required, the procedure is as follows:
- The qualifying tenant needs to serve notice in the prescribed form on their landlord, any intermediate landlord and anyone else that the tenant believes has a superior interest in the property.
- Service of this notice creates a statutory contract between the landlord and the tenant, so the landlord is bound to sell and the tenant is bound to buy. The usual remedies for breach of contract are available to both parties.
- The landlord can demand payment of a deposit which is three times the annual rent or £25.00, whichever is greater. The landlord can also serve notice on the tenant requiring them to deduce title as evidence of their right to enfranchisement. The tenant has 21 days to comply with these requirements.
- The landlord must serve a notice in reply in the prescribed form within two months of service of the tenant’s notice. If the landlord does not admit the tenant’s claim, his reply must state the grounds on which it is rejected. The tenant must then decide whether to dispute this through the courts.
- If the tenant’s claim is admitted then the subsequent procedure is governed by the The Leasehold Reform (Enfranchisement and Extension) Regulations 1967.
- If the purchase price of the freehold or terms of the conveyance cannot be agreed by the parties, either party can apply to the First–tier Tribunal Property Chamber for the matter to be determined.
- Once the price of the freehold is agreed, either the landlord or the tenant may give the other party notice in writing and the completion will take place on the first working day 4 weeks from service of the notice.
How much will it cost me?
It is advised that you obtain a professional valuation of the freehold prior serving your notice of claim on the landlord, as the valuation mechanism set out in the relevant legislation can be complicated.
Valuation is not an exact science, and the cost of purchasing the freehold will vary depending on a number of factors including:
- The freehold value of the property;
- The number of years remaining on the lease;
- The level of ground rents being paid now and due to be paid in the future.
- You will also be expected to pay the following:
- Your solicitor’s legal fees;
- Your surveyor’s costs for valuing the freehold premium;
- Your freeholder’s reasonable costs, which will include their professional fees incurred in valuing the freehold premium, processing the tenant’s notice and serving the notice in reply.
Can I change my mind once notice has been served?
A tenant has one month from the date on which the purchase price of the freehold is determined to change their mind about proceeding with leasehold enfranchisement. If the tenant decides to withdraw from the procedure at this stage, they will still be responsible for paying the landlord’s reasonable costs.