Leasehold enfranchisement is one of those terms that you may have heard a few times in conversations about property, but what does it actually mean, and who needs to know about it?
Before we really get going with this subject, we need to explain some of the terms that we’re going to be using. To help clarify things, we’ve asked an expert: Courtney Manton, partner at Best Gapp estate agents in South Kensington and Belgravia, an expert with over 30 years of experience in the area, who noted that even the terms involved have been around effectively since the Magna Carta: ‘ the original terms of leasehold and freehold come from the original grant of ownership by the Crown.’
He continued: ‘The majority of leasehold properties of value are in Central London, but there are fewer properties in the northern and suburban parts of London having leasehold houses. Most leasehold properties in the suburbs are flats where residential flat developments have been developed in the past of blocks of flats, and the leases are now reducing in lease length due to the passage of time.’
Lease
Let’s start with an easy one. The lease is the contract between the landlord and the tenant. It lasts for a set number of years and imposes certain obligations on both parties: the tenant to pay rent and maintain the property and the landlord to provide certain services.
Leaseholder
The one who holds the lease. It seems obvious, perhaps, but a leaseholder may have ‘bought’ their home, especially in the case of a flat, but they’ve actually paid for the leasehold of the property for a certain length of time. When you’ve bought the leasehold to your flat, you’ll be contractually obliged to pay certain costs to the Freeholder.
Freeholder
This is the owner of the freehold. This person owns the property outright and has the legal right to the ground on which the property is built. This is the person to whom the leaseholder owes certain obligations. Any changes to the property will have to be approved by the freeholder. The most common payment you’ll be paying is the ground rent, which will vary according to factors like the size of the building and the length of the lease.
Length of the lease
A lease length can be anything up to 999 years. If you buy a property with a 200-year lease and then sell it after 10 years, it will have a 190-year lease left. If the length of the lease is anything under 60 years, it will affect the resale price of the property. Courtney said: ‘in my opinion, all leases of any length can be sold but concerns rise where the leases were originally granted for less than 21 years which makes the lease unenfranchiseable in which case, the value of those flats is very much reduced.
There is a very buoyant market in short leasehold property in the prime central area as the amount of money required to acquire the right to occupy the central location is reduced due to the relatively short lease length. In the suburbs, the depreciation of a long lease to a 60 or 70-year lease can make the leasehold flat difficult to sell and hence the need to extend the leases in those locations.’
Ground rent
The amount you pay the freeholder will vary according to the length of the lease. The smallest rent is a peppercorn rent, which, in fact, means you won’t have to pay anything. This comes from the two-century-old tradition of paying one peppercorn instead of money.
Leasehold enfranchisement
Courtney Manton said: ‘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 statute’.
Suppose you’re a leaseholder living in a block of purpose-built flats. You and your fellow flat owners want to buy the freehold. Why would you want this? You might want to make changes to the external appearance, you may feel like the ground rent is too much, or any repairs and maintenance are not being done quickly enough or to a standard that you like. So what do you do?
If a group of leaseholders is in this position, they can apply for collective leasehold enfranchisement. Many different criteria would have to be satisfied, including the type of property, type of use, and number of leaseholders who want to embark on the project.
If all the correct criteria are satisfied, a group of leaseholders can begin the leasehold enfranchisement process. They would need to notify the freeholder of your intention so they know what’s happening, and the process will begin.
Once you’ve started the process, you’ll need the lease valued, and the freeholder will agree to that value. You’re almost certainly going to need expert and legal advice. Is there anything else we need to know from Courtney?
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.
As we can see, there are many complicating factors once the leasehold enfranchisement process has been started. It’s certainly not something to head into without advice.
Thanks to Best Gapp’s Courtney Manton for helping us understand the topic. Best Gapp are estate agents with over 100 years of experience in the Belgravia area. Leasehold enfranchisement is just one of the services they offer.