Flats and houses – Extend your lease or become your own landlord!
- Author: David Crosby
- Posted on: 14th May 2014
- Posted in: Blog
Pursuant to the provisions of the Leasehold Reform Act 1967, the Landlord and Tenant Act 1987, the Leasehold Reform Housing and Urban Development Act 1993 and the Commonhold and Leasehold Reform Act 2002, long leaseholders of flats can extend their lease, acquire the freehold of their block of flats or take over the management of their building.
As the lease of your flat becomes shorter it becomes less valuable. Prospective purchasers may be put off because the lease is too short and/or because they cannot get a mortgage of such a short lease. As long as the lease was originally granted for more than 21 years and you have owned the flat for more than two years, you can serve a claim to extend your lease by 90 years. The new lease will be on the same terms but the ground rent will become a ‘peppercorn’. The landlord will be required by law to respond to your notice and if he doesn’t you will be entitled to have the new lease granted to you at the price you offered. However you have to get the notice right and it has to be valid otherwise you may have to wait up to a year to serve another one during which time your lease is getting shorter and shorter. You will also need to instruct a valuer to advise on the ‘offer’ to include in your lease extension notice which will be served on your landlord. It is of the utmost importance that you do this before your lease drops below 80 years because at that point the cost to extend your lease will jump up and most mortgage lenders will not accept leases of less than 80 years!
Alternatively the tenants of a block of flats can get together and buy the freehold of the block of flats in which they live. There are several common reasons for buying the freehold of your building, or collectively enfranchising as it is known. Firstly joining together with other leaseholders in the building to acquire the freehold enables leaseholders to halt the depreciation of their lease as it gets shorter and to extend their own leases, commonly to 999 years. Secondly in other cases leaseholders are concerned about the mismanagement of their building, the failure of their landlord to maintain it or exorbitant service charges. Simply put, the leaseholders believe that they can do a better job managing the building for themselves directly or by controlling the management by appointing their own managing agents. Finally, whilst there are usually a combination of factors, in most cases the one that most influences the final decision to enfranchise is that the proportion of the total price that each leaseholder is required to pay to obtain a share in the freehold is less, and often significantly less, than the increase in value of their existing lease with a share of that freehold. The minimum number of leaseholders required to participate has been reduced to 50%. A notice will need to be served on the freeholder and again a valuer will need to be appointed to determine the offer price to include in the notice.
Subject to a limited number of exemptions, under the Landlord and Tenant Act 1987 it is a criminal offence for a freeholder of a block of flats to sell the freehold without first offering it to the tenants. The qualifying conditions are substantially the same as for collectively enfranchising but in this instance it is the landlord who is required to a serve a notice on the tenants and the tenants, if they want to acquire the freehold need to respond within the statutory timeframes. Usually the landlord has already found a buyer and a price has been agreed but he has to serve a notice on the tenants before proceeding with that sale. Accordingly the tenants have a very limited time within which to respond and therefore if you receive a notice from your landlord act very quickly!
The qualifying conditions for the long leaseholders of a block of flats to take over the management of their block pursuant to the Right to Manage legislation contained in the Commonhold and Leasehold Reform Act 2002 is identical to the collective enfranchisement procedure but this time there will be no price or premium to pay other than the legal fees of the representatives who act for you. Under the statutory timeframe the landlord simply needs to be given 1 month to respond to the tenants notice and the transfer of the management to the tenants will follow 3 months after that.
Finally, if in the rare instance you have a lease of a house, the Leasehold Reform Act 1967 enables you to extend your lease or acquire the freehold. Again a notice needs to be served and a premium will need to be paid based on a complex statutory formula.