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- extend their lease;
- buy out the freeholder collectively (collective enfranchisement); or
- replace the managing agents (right to manage).
A lease is a wasting asset which means as the term reduces, so does the value of your property. If the remaining term of your lease is around 80 years or less, you will need to consider your options as soon as possible. A lease extension needs to be obtained;this can be done individually or you and your neighbours can look to buy the freehold collectively.
You must extend your lease when the term reaches 80 years or less as it becomes more difficult to obtain a mortgage and therefore more difficult to sell which in turn reduces the value. A lease extension appreciates the value of the property and this is the main reason leaseholders choose to extend their leases. The longer you leave it to extend your lease, the more expensive it becomes.
The majority of leaseholders will be able to extend under statutory legislation. Certain legal requirements must be met and the most significant are;
- You need to own a lease with an original term exceeding 21 years; and
- You have to have owned your flat for at least 2 years.
You will be entitled to:
- An extension of an additional 90 years to the remaining term of your lease.
- Nil ground rent for the entire term of the extended lease.
- The premium is calculated under the legislation.
The landlord is entitled to compensation for the loss suffered on the grant of the lease extension. This compensation is paid by the leaseholder and is referred to as the premium. It is made up of the following;
- the decrease in the value of the landlord’s interest in the flat between the value of his interest now and the value of his interest after the grant of the new lease;
- the landlord’s share of the marriage value (marriage value is the increase in the value of the property following the completion of the lease extension, reflecting the additional market value of the longer lease); and
- compensation for loss arising from the grant of the new lease.
Initially you will require a professional report that provides a valuation of the premium that should be paid to your landlord. That figure can then be used as a basis in subsequent negotiations.
There is a prescribed procedure to be followed and our expert lawyers can advise you on the process and timescales involved. It is also an option to extend your individual leases collectively on a bulk basis to achieve cost-sharing of some kind.
Buying a share of the freehold, collective enfranchisement, is the ultimate example of leaseholders acting together to own the freehold outright.
Buying the freehold involves serving a notice on the freeholder and requires that 50% or more of the leaseholders within the block agree to participate in the purchase of the freehold. Once the freehold has been purchased the lease can fairly easily be extended to 999 years.
Leaseholders will need to consider the cost of purchasing the freehold; the more leaseholders that participate, the less each leaseholder will pay for their share of the freehold. A new company will also need to be created and some of the leaseholders will need to become directors who are willing to put in the work and effort to manage its affairs.
There are clear advantages of owning the freehold of your property compared to a leasehold arrangement:
- The process of lease extension is far more straight forward.
- The properties will not be subject to the various charges that a landlord can apply.
- You will not have to deal with a landlord and have overall responsibility for the property .
Right to Manage
A group of leaseholders can collectively take over the management of their building provided that certain qualifying criteria are met and the correct procedure is followed. The landlord has very limited scope to object or delay the process.
The desire to exercise the right usually stems from issues with the management company or problems with the service charge demands. The leaseholders may wish to take over the management functions to avoid these problems in the future. The duties of proper management upon the right to manage company will extend to qualifying tenants who do not participate and the landlord.
The procedure involves the formation of a right to manage company, the invitation to all leaseholders within the building to participate, service of a claim notice on the freeholder and then dealing with the notice served by the freeholder either accepting or countering the claim.
Our specialist lawyers can provide you with frank and sensible advice as to the options available to leaseholders to make changes to the tenure of their flats. The option chosen depends on the individual circumstances, but we will carefully guide you through the broad choices available to you.