Need to know what’s what on this tricky topic? Read on….
At Best Gapp, we like to think our experience shows. We’ve been in the Belgravia area for over 100 years and we offer a range of expert services. On the blog today we are focusing on just one of those services: leasehold enfranchisement. It’s hard to understand the full and complicated extent of it until you get involved – as former US Defence Secretary Donald Rumsfeld noted a few years ago, there are always unknown unknowns – things we don’t know we don’t know, and for many, leasehold enfranchisement is indeed an ambiguous area.
To help shed light on those unknowns, who better to talk to than Courtney Manton, partner at Best Gapp since 1981, with over 30 years experience in the property industry in central London – an area with a significant amount of leasehold properties of value.
Courtney has worked with an extensive range of landlords and tenants acquiring freehold and leasehold properties on the Cadogan, Grosvenor, Howard de Walden, Wellcome, Stanhope, Crown and Church Estates in central London. He has also acted for individual clients on lease extensions. He sums up succinctly below the three different areas of leasehold enfranchisement:
Leasehold and Freehold
Courtney enlightened us as to the difference between leasehold and freehold properties: ‘a lease on property is an agreement between two parties for a term of years with obligations on both parties. Landlords agree to provide services; tenants usually agree to pay rent; maintain the property and enjoy the benefit of occupation.
The principal difference between a leasehold and a freehold property is that a leasehold property is only owned for a period of years determined in the agreement whereas the freehold is the right to ownership and perpetuity.
The original terms of leasehold and freehold come from original grant of ownership by the Crown effectively since Magna Carta.’
Leasehold enfranchisement is the right to extend or buy a lease. As Courtney says: ‘an enfranchisement is the right of an individual lease to acquire either a lease extension of 90 years beyond their existing term or the right to acquire the freehold reversion by Statue. The original Act granting the right of a tenant to acquire the freehold of the house is the Leasehold Reform act 1967 which has subsequently been amended. The Leasehold Reform Housing and Urban Development Act 1993 provides similar rights to holders of leases originally of more than 21 years to extend their lease for 90 years.’
If a group of leaseholders in one block of flats seek to join together to do this then the process is collective. Courtney explains: ‘one would extend ones’ lease on a flat where the short lease of given years, will be enhanced on terms by more than the cost by extending it. You may seek to collectively enfranchise the freehold of a block of flats with others but you would need to have at least 50 percent of the long leaseholders owning a lease over 21 years to be able to acquire the freehold.
A collective enfranchisement, where lessees join together to force the landlord to sell them the freehold does not occur where the majority of lessees are often over retirement age and see no benefit in having an extended term as a consequence of the need to invest capital where their life expectation is significantly below the existing lease length and therefore there will be a need for investors to acquire the reversions to their flats when the collective enfranchisement process proceeds.
Leasehold Valuation Tribunal
The process is relatively complicated as a consequence of the legal framework set down in the Leasehold Reform Legislation and the relevance of comparable evidence and the formal valuation process needs to be adhered to. In the event that disagreement occurs largely over price, the matter will be dealt with by the Leasehold Valuation Tribunal but there is recourse to the Courts for more complicated legal aspects of the issues concerned.
The complicating factors are where there are a number of intermediate lessees whose interests need to be acquired during the process and the relevance of their interest is considerable when calculating to the compensation to be paid to them. Where there is a leasehold flat on the Crown Estate, the rules are largely the same but depending on where the property is located, the Crown will not extend the lease beyond a certain term, usually up to 150 years.
Also, because there is no Leasehold Valuation Tribunal process to appeal to in those cases, the disagreement is referred to an Arbitrator who is experienced at such matters.’
As we can see from Courtney Manton’s comments, the process is not one to be undertaken lightly, and has many complicating factors. It’s certainly something that requires the advice of an expert. Courtney said: ‘there is nothing to stop individual lessees approaching the landlord themselves to agree a premium to extend the lease either for a statutory term of 90 years or shorter or indeed longer term but again the lessees will need to be advised as to the correct premium to pay and to be aware of the issues concerned.’
If you need help with leasehold enfranchisement, Best Gapp will be happy to advise you. Contact us with your details and we’ll be in touch.
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