Leasehold enfranchisement

Leasehold properties can depreciate in value as the lease expiry date gets closer, making them more difficult to sell without reducing the price. An alternative to paying the freeholder to extend the lease is for the leaseholders to purchase the freehold. This process is known as enfranchisement, although the term is sometimes also used to refer to both lease extensions and purchasing the freehold.
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It is generally necessary to extend a lease before it expires. As a general rule, if a lease has less than 90 years left to run, it should be extended, to avoid depreciation and to not deter potential buyers. The right under the law is to add 90 years to what is left on an existing lease in respect of flats. For further information read Lease extensions.

The alternative to extending a lease is to purchase the freehold of the property. This means that a leaseholder will no longer have to pay ground rent or be burdened by any restrictions contained in their lease. They leaseholder will become the freeholder.

Since most leasehold properties are blocks of flats, it will normally be necessary for the majority of leaseholders to agree to purchase the freehold together outright; this process is known as collective enfranchisement, and it can work out cheaper than each leaseholder extending their individual lease.

Flats

If the owners of at least 50% of the flats in a building want to purchase the freehold, the landlord cannot refuse. The total amount which needs to be paid for the freehold can be calculated using a special formula contained in law. This amount is known as the 'premium'. The leaseholders involved must decide how to acquire and hold the freehold (eg via a company set up for this purpose - which will be the nominee purchaser). The process of collective enfranchisement briefly entails:

  • checking eligibility (of the tenants and the building)

  • organising for enfranchisement (at least 50% of flats must be involved)

  • assessing the premium

  • serving the initial notice on the current freeholder

  • choosing the nominee purchaser

For further information read Collective enfranchisement and for further information on freehold valuation read Valuation for enfranchisement.

Houses

Houses are dealt with differently from flats for purposes of enfranchisement. The law provides leasehold tenants of houses with the right to purchase the freehold. For information on the procedure read Leasehold houses - Buying the freehold.

Purchasing the freehold provides residents with more control over the management of their property. It also means that they can extend the lease attached to their property to 999 years, improving its saleability.

However, purchasing the freehold also comes with a whole series of responsibilities related to building management such as fire safety and disrepair, along with attached costs. Furthermore, disputes can arise over the approach to building management between freeholders.

Leasehold enfranchisement is a complicated area of law and it's always advisable to Ask a lawyer to help smooth the process and avoid the pitfalls.

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