Enfranchisement & lease extensions FAQs

Why should we enfranchise or extend our leases?

  • a lease is a wasting asset and with every year that passes it gets shorter. Eventually, your flat will become unmortgagable and difficult to sell. Silly as it may sound, a lease with less than 80 years left to run is now regarded as being “short” and even leases with 80 to 85 years left may be difficult to sell
  • a lease extension will preserve, and perhaps even increase, the value of your flat
  • if you enfranchise you can grant yourselves extended leases
  • many existing leases do not satisfy mortgage lenders’ current requirements. If you enfranchise you can rewrite your leases to overcome that problem
  • you may be unhappy with the management of your building. If you enfranchise you can take control of the management

Should we enfranchise or extend our leases?

You should enfranchise if either

  • you want to control the management of your building
  • your leases do not satisfy mortgage lenders’ current requirements
  • you want to grant yourselves new extended leases

You should extend your lease if either

  • you are planning to sell your flat soon – enfranchisements usually take longer than lease extensions
  • your building does not qualify for enfranchisement

ENFRANCHISEMENTS

Do we qualify for enfranchisement?

  • the “qualifying tenants” must own at least 2/3rds of the flats in the building – to qualify the leases must have been originally granted for terms of at least 21 years
  • a qualifying tenant cannot own more than 2 flats in the same building
  • the participating tenants must be qualifying tenants and must own at least half of the flats in building (and not less than 2 flats)
  • a building with 4 or less flats and a “resident landlord” will not qualify

Example 1

A building contains 9 flats, all held on leases granted for terms exceeding 21 years. 3 flats are owned by the same person. Therefore, 6/9ths (i.e., 2/3rds) of the flats qualify and, provided at least 5 owners of qualifying flats participate, the building can be enfranchised

Example 2

A building contains 3 flats, 2 are held on leases granted for terms exceeding 21 years by the same person and the other is held on a tenancy granted by the freeholder. Therefore, 2/3rds of the flats qualify and the person owning those flats can enfranchise

Do we have to invite all the qualifying tenants to participate?

As the law presently stands, no. All you need to enfranchise is the minimum number of participating tenants referred to above

Can our freeholder stop us enfranchising?

Only in very exceptional circumstances and, even then, usually only with the consent of the court

Our freeholder is missing (or dead or bankrupt) – will that stop us enfranchising?

No. There are procedures for dealing with absentee freeholders

How much will we have to pay for the freehold?

Dependent upon whether leases have more or less than 80 years left to run and upon whether all of the qualifying tenants participate, the calculations will involve capitalising ground rents, “marriage value” and even “hope value”. These figures can vary according to all sorts of factors and only a surveyor with the appropriate skill and experience can advise you as to the likely spread of prices you can expect to pay. It is essential (for all sorts of reasons) that you have a proper valuation as the price you propose in your initial notice to your freeholder must be “realistic” – i.e., you can’t simply put a nominal figure forward and then negotiate later

Our freeholder says we have to pay all his costs – is that right?

No. The costs you have to pay are stipulated in the 1993 Act. Once the participating tenants serve their initial notice (which sets off the entire process), the freeholder becomes entitled to his costs for ascertaining the participating tenants’ right to enfranchise (checking the titles of their flats), his surveyor’s valuation fee and the costs “of and concerning” the transfer of the freehold. He is not entitled to his surveyor’s negotiating fees or for any work carried out in connection with any application to the Leasehold Valuation Tribunal (LVT). For a block of up to 4 flats, you should budget for total costs not exceeding £2,750

How long will it take to complete the enfranchisement?

In very broad terms, the enfranchisement process is as follows

  • we collate various documents and information and prepare the initial notice for signature by the participating tenants. This process usually takes about one month.
  • once the initial notice has been served on him, the freeholder has a minimum of 2 months to serve his counter-notice
  • if the freeholder does not agree all the terms proposed in your initial notice, there is a 2 months’ wait and see period, during which time you and your freeholder will normally try and settle any outstanding matters (usually, the price payable for the freehold)
  • if the outstanding matters are still not agreed, you can apply to the LVT for a determination at any time up to 6 months after the service of the freeholder’s counter-notice
  • the LVT hearing usually takes place about 3 months after the application
  • the LVT usually takes about 2 months to give its determination
  • completion usually takes place about 2 months after the LVT’s determination

How long the entire process will take will all depend upon your freeholder. A sensible freeholder, sensibly advised, will be looking for a quick completion. A greedy and/or badly advised freeholder could drag the whole process out although this is unlikely given that he will not be able to recover a good deal of his costs in doing so from you. Most matters go no further than the wait and see period. In a few matters it becomes necessary to issue an application to the LVT (this brings most recalcitrant freeholders into line). Only very occasionally does a matter go all the way to a full hearing.

How much will your fees be?

  • we currently charge £200 per hour plus VAT and disbursements (expenses that we will incur on your behalf during the course of your enfranchisement – these will vary from £150 upwards dependent upon the number of flats, the price payable for the freehold, etc)
  • for straightforward enfranchisements of up to 4 flats in the building, we anticipate that our total involvement will be in the region of 12-14 chargeable hours provided the price and the terms of the transfer and the “statutory” costs payable to the freeholder are agreed without any application to the LVT
  • making an application to the LVT for a hearing takes approximately 4-6 chargeable hours
  • preparing for and attending a one day hearing at the LVT (the LVT lists 6-8 cases for hearing over a 2 days’ session) will take approximately 30 chargeable hours

We have been told that we must form a company to purchase the freehold – is that right?

This all depends on how many flats there are in the building. For up to 4 flats, a company is a bad idea – a simple freehold trust is much better. In our opinion a freehold trust is preferable for up to 8 flats. Thereafter, a company is probably better

Can non-participating tenants join in the purchase later?

For highly complex reasons affecting the price payable, this is usually not a good idea. Tenants should either join for the whole process or be excluded altogether. The excluded tenants will then have to wait and see whether they are offered a share of the freehold after completion – there are anti-avoidance provisions in the 1993 Act that could threaten the entire process if there is any agreement with the excluded tenants before completion

LEASE EXTENSIONS

What do I get when I extend under the Act?

A 90 years extension to the current balance of your lease and your ground rent will reduce to a peppercorn – i.e., you will pay no more ground rent

How do I qualify to extend my lease?

You must have been registered as the owner of your flat for at least 2 years. It is not necessary for you to live at your flat as well

I am in the process of buying a flat. Do I still have to wait the 2 years?

Yes. However, if your seller qualifies he can start the process for you and on completion transfer the benefit of his claim – you would then have the right to extend your lease immediately

  • if your conveyancing solicitor is unfamilar with this procedure we can help with the preparation of the necessary documentation

How much will I have to pay for the lease extension?

The valuation procedures laid down by the Act are complex and involve capitalising ground rents, “marriage value” and even “hope value”. These figures can vary according to all sorts of factors and only a surveyor with the appropriate skill and experience can advise you as to the likely spread of prices you can expect to pay. It is essential (for all sorts of reasons) that you have a proper valuation as the price you propose in your initial notice to your freeholder must be “realistic” – i.e., you can’t simply put a nominal figure forward and then negotiate later

I have 81 years left on my lease and I have been advised that there is no need to extend. Is this right?

No. The Act states that where a lease has more more than 80 years left to run then there is no marriage value payable to the freeholder. Once a lease has less than 80 years left to run marriage value becomes payable and the price for the lease extension rises immediately

My freeholder says I will have to pay all his costs – is that right?

No. The costs you have to pay are stipulated in the 1993 Act. Once you serve your initial notice (which sets off the entire process), your freeholder becomes entitled to his costs for checking your right to a lease extension (checking the title of your flat), his surveyor’s valuation fee and the costs “of and concerning” the grant of the extended lease. He is not entitled to his surveyor’s negotiating fees or for any work carried out in connection with any application to the Leasehold Valuation Tribunal (LVT). You should budget for total costs in the region of £1,750

Surely it must be easier to simply deal with my freeholder direct?

In certain cases it could be. However, your freeholder may not want to extend your lease and you cannot guarantee that the terms of the new lease will be favourable to you. For example, your freeholder may decide to grant a shorter extension or he may increase the ground rent. You will also have no say as regards the price he charges for the extension nor as regards his costs

How long will it take to complete the extension?

In very broad terms, the extension process is as follows

  • we check the title to your flat, your freeholder’s title, your lease and your surveyor’s valuation. We prepare the initial notice for signature by you and then we serve it on your freeholder. This process usually takes about one month
  • once the initial notice has been served on your freeholder he has a minimum of 2 months to serve his counter-notice
  • if your freeholder does not agree all the terms proposed in the notice, there is a 2 months’ wait and see period, during which time you and your freeholder will normally try and settle any outstanding matters (usually, the price payable for the lease extension)
  • if the outstanding matters are still not agreed, you can apply to the LVT for a determination at any time up to 6 months after the service of the freeholder’s counter-notice
  • the LVT hearing usually takes place about 3 months after an application has been made
  • the LVT usually takes about 2 months to give its determination
  • completion usually takes place about 2 months after the LVT’s determination

How long the entire process will take all depends upon your freeholder. A sensible freeholder, sensibly advised, will be looking for a quick completion. Most matters go no further than the wait and see period. In a few matters it becomes necessary to issue an application to the LVT (this brings most recalcitrant freeholders into line). Only very occasionally does a matter go all the way to a LVT hearing

Once the notice has been served can I change my mind?

Yes. However, you will be liable for your freeholder’s wasted legal and valuation costs. In addition, you will not be able to serve a further notice of claim within 12 months from the date you withdraw

How much will your fees be?

  • we currently charge £190 per hour plus VAT and disbursements (expenses that we will incur on your behalf during the course of your extension – these will vary from £150 upwards)
  • for straightforward extensions we anticipate that our total involvement will be in the region of 8 –12 chargeable hours provided the price and the terms of the new lease and the “statutory” costs payable to the freeholder are agreed without any application to the LVT
  • making an application to the LVT for a hearing takes approximately 4-6 chargeable hours
  • preparing for and attending a one day hearing at the LVT (the LVT lists 6-8 cases for hearing over a 2 days’ session) will take approximately 30 chargeable hours

ENFRANCHISEMENTS AND LEASE EXTENSIONS

How much experience do you have of leasehold reform law?

As a firm our experience of the leasehold reform legislation goes all the way back to the Leasehold Reform Act 1967 – even now, we are still enfranchising leasehold houses. Our experience of the 1993 Act is extensive and started even before the Act came into force. We are recognised as specialists in this highly complex area of law and now act not only for our own clients, but also the clients of other solicitors and surveyors

We have been told we should speak to some of your clients – can we have details please?

Quite simply, no. We are obliged by law to maintain strict client confidentiality and a breach of that confidentiality would expose us to disciplinary proceedings