LEASE EXTENSIONS AND ENFRANCHISEMENT

Leaseholders have certain rights granted by statute including:

• The right to receive information from the landlord.
• The right to be consulted in relation to any major works the landlord proposes to carry out to the property at the tenants’ expense.
• The right to challenge service charges.
• Where the landlord’s management is deficient, the right to apply to the Tribunal (Property Chamber) for the appointment of a new manager.
• Where the landlord wishes to sell its interest in the property, the right of first refusal to purchase the landlord’s interest.
• The right to vary the terms of the lease where it does not make proper provision for such things as the repair and maintenance of the building.
• The right to demand a new extended lease from the landlord for a term of 90 years plus the remaining term of the existing lease, with the price to be agreed between the parties or in default of agreement to be determined by the Tribunal.
• The right to individually (if a house) or collectively (if a flat) purchase the freehold interest in the property with the price to be agreed between the parties or in default of agreement to be determined by the Tribunal.

The years left on your lease have an impact upon both the value of the property and your ability to obtain a mortgage on it. The lower the years the bigger the impact. Most mortgage lenders are unwilling to grant residential mortgages on leasehold properties with less than 80 years left, and once the lease has less than 80 years left the value of the property also reduces year by year thereby leaving the owner trapped unless they are able to purchase the freehold or obtain a lease extension.

In most cases it is far more straightforward, and cheaper, to request a lease extension rather than seek to purchase the freehold.

If you want to extend your lease:

• Step 1. Inform your landlord. You should first inform the landlord of your desire to extend the lease.
• Step 2. Appoint a solicitor. You should appoint a lease extension solicitor, such as Birch Law, to provide advice in connection with the lease extension and deal with the process for you.
• Step 3. Appoint a valuation expert. You should appoint a valuation surveyor with expertise in leasehold extension legislation and the local property market.
• Step 4. Tenant’s Notice. You should serve on your landlord a formal tenant’s notice indicating your intention to extend the lease and the amount being offered. The initial notice will also set out other proposed terms including duration of the extension.
• Step 5. Negotiate. You should then negotiate with the landlord an acceptable price for the lease extension. If the landlord is unwilling to agree to the terms of your initial notice, they will serve on you a counter notice.
• Step 6. Application to the First Tier Tribunal (Property Chamber). If you are unable to agree on the terms of the lease extension you can apply to the First Tier Tribunal (Property Chamber) and ask that they make a determination. The process can be complicated so it is important to take legal advice as soon as possible.

The amount you will need to pay to the landlord depends on a number of factors including the value of your property, the number of years left on the lease, the annual ground rent, and the value of improvements done to the property by the leaseholder. Determining the value of the freehold can be complicated and will require expert input.

Leasehold enfranchisement is when the leaseholders in a building collectively purchase the landlord’s freehold interest. This is normally the best option where enough of the leaseholders are ready willing and able to purchase the freehold interest.

The process can be complicated so it is important to seek expert legal advice as soon as possible. To qualify:

• The building needs to contain at least two flats.
• No more than 25% of the freehold building can be used for nonresidential purposes (e.g., offices or shops).
• At least two thirds of the flats need to be owned by leasehold owners who own the flats on a long lease (they must be granted for at least 21 years).
• At least 50% of the total number of flats in the building must be owned by leaseholders who want to buy a share of the freehold. However, if there are only two flats in the building then both leasehold owners must want to buy the freehold.
• The right is exercised by a nominee purchaser or a company (usually a special purchase vehicle set up specifically for that purpose).

There is no obligation on the prospective participators to invite all qualifying unit owners to participate. However, it would be in everyone’s interests to have as many participators as possible to reduce the cost per participator.

• Step 1. Eligibility. Check that you are eligible. There are a number of requirements that need to be met in order to be able to buy the freehold.
• Step 2. Discuss with your neighbours. Speak with the other apartment owners. At least 50% of the apartment owners need to be willing to buy it. In addition, the more participants the less the cost per apartment owner.
• Step 3. Instruct a Solicitor. It is essential that you obtain expert legal advice as soon as possible. At Birch Law, we can help you guide you through the process.
• Step 4. Instruct an expert. You need to determine the cost of the freehold. This can be complicated so it is important to obtain expert valuation advice as soon as possible. The expert will provide you with a valuation of the freehold and will also provide ongoing support and assistance. At Birch Law we can instruct the expert on your behalf.
• Step 4. Participation agreement. We will need to draw up a participation agreement between you and all the other apartment owners participating in the purchase. The last thing you want is to have someone drop out at the last minute increasing the cost for everybody and causing the percentage of participating apartment owners to drop below the required 50%. A participation agreement is essentially a contract between all the leaseholders participating in the purchase and outlines the terms of agreement between them.
• Step 5. Set up a company. In order to buy the freehold, the right is exercised by a nominee purchaser or a company. We can assist with the formalities of setting up a new company along with preparing the corporate documents.
• Step 6. Issue a tenants’ notice. The application is initiated by an initial notice (which fixes the date for valuation) offering a price for the freehold. It is essential that the notice served on the landlord is correct. If it isn’t you may have to wait another 12 months before you can serve them again. The initial notice triggers a strict timetable that must be complied with. If not followed by the unit owners, it will be deemed that they have withdrawn their notice. If not followed by the freehold owner, the freehold owner will lose the right to challenge the price offered in the initial notice.
• Step 7. Negotiation. Following receipt of the initial notice the landlord will need to serve a notice in reply / or counter notice. The parties will then engage with one another in the hope of resolving matters amicably.
• Step 8. Application to the First Tier Tribunal (Property Chamber). If you can’t agree on a price for the freehold or the freehold owner is unwilling to sell, we can apply to the property tribunal for a determination. There are strict time limits that apply, and it is therefore essential that you obtain legal advice as early as possible.

In both lease extension and leasehold enfranchisement applications the flat owners will need to pay their legal costs and the valuation fees along with the reasonable legal costs and valuation fees of their landlord. Unfortunately, where there is more than one landlord (for instance where you have an immediate landlord and then a head landlord) you will need to pay the fees of both.