Lease Extensions and Enfranchisement
Lease Extensions
The firm specialises in valuing and negotiating lease extensions, both statutory and informal.
A statutory valuation is a form of compulsory purchase and a tenant is entitled to request this from a landlord by service of informal Notice under the 1993 Leasehold Reform Act (as amended). This entitlement is subject to a qualification period of having had registered ownership of the flat for two years.
The premium paid is dependent on the lease length and if a lease has more than 80 years unexpired, due to the Commonhold and Leasehold Reform Act 2002, there will be no marriage value paid.
Marriage value is the profit generated from a lease extension. There are substantial savings to be had by making an application prior to 80 years.
The Premium
The premium payable for a lease extension is effectively an amount to compensate the landlord for the loss of ground rent income. The statutory right allows a tenant to buy out their ground rent and for a new lease to be granted subject to a peppercorn (effectively £nil) per annum.
The second element of the premium is compensating the landlord for not receiving the flat back at the expiry of the lease.
Where the term is less than 80 years, there is a further element, marriage value, to be paid. This is the increase in value attributed to combining the freehold and leasehold interest. Under statute the landlord is entitled to 50% of this profit.
Collective Enfranchisement – Freehold Purchase
Owners of flats are also entitled to compulsory purchase their block from their freeholder, save as in special circumstances.
There are a number of qualifying requirements:
1. In order to participate in an enfranchisement the tenancies must originally have been more than 21 years and at least two thirds of the flats must be qualifying tenants.
2. Less than 25% of the building (if applicable) should be commercial.
3. The building must be self-contained and structurally detached.
4. In order to proceed at least 50% of tenants must participate.
There are a number of complications, where for example, there is a resident landlord or three or more flats are held by one individual, however with structured and carefully planned advice, which we are able to provide, in many cases obstacles can be overcome.
Procedure on Costs
A landlord should only be able to claim for the following:
Solicitors
a) Confirming that the Notice is in fact valid
b) Confirming Title
c) Service of Counter-Notice
d) Conveyance of freehold Title or preparation of new lease
Surveyors
A tenant would only be liable to pay the landlord’s reasonable costs in ascertaining the value of the premium. There are different interpretations as to the application of this costs issue in relation to lease extensions or collective enfranchisements but in normal circumstances mainly the costs of the initial valuation only.
Important Note:
In relation to you’re a tenant’s costs, he or she would expect to pay your own surveyor and solicitor.
It should be noted that in the event of dispute there is the opportunity to proceed to the Leasehold Valuation Tribunal (details can be found at www.rpts.gov.uk or a more user-friendly explanation at the Government’s website, www.lease-advice.org).
You should also be aware that at Leasehold Valuation Tribunal, each party is expected to bear their own costs and as such a very limited number of cases actually reach this destination due to cost implication.
In the event of referral beyond this Tribunal, for example Lands Tribunal, Court of Appeal or subsequently House of Lords, different rules apply in relation to costs.
There is some protection from the Act in relation to cost, where for example, a matter reaches the Leasehold Valuation Tribunal and a party, be it landlord or tenant, has acted unreasonably. There is a potential to achieve limited damages or costs recovery of up to £500 if the Tribunal were to agree.
Contacts
For advice, contact Justin Bennett: jlb@lbb.org.uk
Related Information and Articles
Buying the Freehold of Your Block – by Justin Bennett
Enfranchisement: In the beginning – Get proper advice – by Justin Bennett
“The Time is Now” – Extending Your Lease – by Justin Bennett
