BUYING THE FREEHOLD OF THE BUILDING TOGETHER

[LEASEHOLD ENFRANCHISEMENT] OR EXTENDING YOUR LEASE

What is Leasehold Enfranchisement?

Leasehold Enfranchisement (also known as Collective Enfranchisement or the Right to Enfranchise) is the right for flat leaseholders to join together (under the Leasehold Reform Act 1993) to force their landlord to sell the freehold to their block of flats to them. Leasehold Enfranchisement applies only to residential property. When you buy the freehold, you become both landlord and tenant and can extend the lease of your house or flat by granting yourself a new lease of up to 999 years.

Why would I want Leasehold Enfranchisement?

1.     Your asset stops deteriorating — exercising your right to enfranchise allows you to grant yourself a very long lease, often for 999 years, at a 'peppercorn rent' (i.e. your lease effectively becomes rent free).

2.     Buying a freehold enables tenants to take direct control of maintenance and management of their building — avoiding the need for overpriced service charges and creating the chance to improve the quality of management services by removing the need for external management companies. Service charge disputes are one of the main reasons why tenants often decide to go ahead with leasehold enfranchisement.

3.     Re-mortgaging may become easier as many lenders prefer the additional security of freehold over leasehold properties.

4.     Leasehold Enfranchisement provides a more secure family inheritance.

5.     The building's value is likely to increase.

The cost of the freehold purchase of a lease with under 80 years left increases considerably — for leases under 80 years the landlord is entitled to 50% of the 'marriage value' (i.e. the difference in the value of the property before and after you exercise your right to enfranchise). There is no marriage value payable if the lease has over 80 years left.

Who can apply for Leasehold Enfranchisement?

The main criteria for Leasehold Enfranchisement under the Leasehold Reform Act 1993 are:

•       The building must have at least two flats — if there are only two flats, both tenants must join in the application.

•       At least half of the flats must have tenants who want to participate.

•       The original lease must have been for at least 21 years.

•       Unlike lease extension, when you exercise your right to enfranchise there is no requirement for a tenant to have owned a flat for at least two years.

What will I have to pay for:-

1.     A surveyor's valuation report valuing the freehold.

2.     Your solicitor's costs, which will include costs in preparing and serving the original notice on the freeholder, legally transferring the freehold into a new company set up for the purpose and preparing new leases. If a landlord is uncooperative, there will be additional legal costs incurred in an application to the Leasehold Valuation Tribunal.

3.     The costs of an agreement with the other flat owners taking part in the Leasehold Enfranchisement, setting out their contributions and entitlement to new leases

4.     Your landlord's reasonable costs, including his freehold valuation costs, the costs of any legal advice he has taken about the leasehold enfranchisement and his conveyance costs.

For further advice see:- The Leasehold Advisory service www.leaseadvice.org or www.englewoodcommercial.co.uk