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Lease Extensions and Collective Enfranchisement

The areas of lease extensions and collective enfranchisement can be confusing and stressful for all parties involved as there are numerous procedures and deadlines that must be met. At CWJ we have a highly experienced specialist team to guide you through this complex area, providing advice and support. 

Lease Extensions

If you own a flat then you own a “wasting asset”. It is a good idea to look at the remaining length of your lease regardless of whether you wish to sell your flat as:

  1. whilst the number of years left on your lease gets lower so does the market value of your flat;
  2. leases with shorter terms may cause problems when re-mortgaging your property;
  3. leases with less than 60 years remaining are effectively unmortgageable and on the sale of your flat will limit your market.

If you have owned your flat for more than 2 years then you could be entitled to a lease extension of 90 years on top of the unexpired length of your lease with no ground rent.

If your lease is approaching 80 years remaining then now is definitely the time to act. Once your lease goes below 80 years the premium you pay the freeholder dramatically increases.

We are here to help you decide whether an agreed lease extension or a statutory lease extension would suit your particular circumstances. Please give our team a call on 01689 323053 or complete an enquiry form opposite.

Please see our Lease Extension FAQs.

Collective Enfranchisement

Instead of extending your lease if enough flat owners in a converted house or block of flats wish to buy the freehold then this can cost each flat owner the same amount as a lease extension.

The benefits of buying the freehold means that you can take control of the management of the freehold and reduce your service charge costs and you are able to grant yourself 999 year lease extensions, improving the value of your flat.

We are here to help you decide whether an agreed purchase of the freehold or collective enfranchisement would suit the particular circumstances.

Right to Manage

What is Right to Manage (RTM)?

A collective right given to flat owners holding long leases to take responsibility for the management of their building from the Landlord via an RTM company. This right is set out in the Commonhold and Leasehold Reform Act 2002.

What does it do?

Collectively, if the leaseholders of a building are unhappy with the way that the building is managed by their Landlord or managing agents then they could have the right to take over that management themselves, including maintenance, insurance and services at the building.

The good thing is that you do not even have to prove mismanagement by the Landlord or current managing agent to implement this right.

Advantages of RTM

Once the claim is successful:

  • you can employ your own contractors, e.g. managing agents;
  • you do not need to prove any fault by the Landlord/managing agent;
  • you do not pay a premium to the Landlord for the right;
  • in a lot of cases, there will be savings on maintenance, insurance premiums and management fees etc;
  • all the above will most likely result in enhancing the future marketability and value of the individual flats.

Disadvantages of RTM

Although it makes logical sense for flat owners to take general control of the maintenance:

  • managing a building can be burdensome particularly if you live in a large building with a lot of leaseholders;
  • the RTM company must abide by the Articles of Association and company law. You will need officers who are willing to perform all the responsibilities of an RTM company director.

​Despite the above cons, please bear in mind that the RTM process is usually cheaper and comparatively quicker than the listed alternatives.

What are the alternatives to RTM?

If you have a difficult Landlord, then you may consider the following alternatives:

  1. Buying the freehold under the process called ‘collective enfranchisement’ which is your legal right to buy a share of the freehold under the Leasehold Reform, Housing and Urban Development Act 1993, subject to the fulfilment of statutory criteria. You will have to pay a premium to the Landlord for the freehold interest.
  2. You could apply to the First-tier Tribunal (FTT) under a Reasonableness of Service Charge claim.
  3. You could apply to the FTT to appoint a manager subject to proving fault on the part of the Landlord.

How can CWJ help you?

If you are unhappy with your Landlord/management company, then we can assist you.

When you contact us, we will explain the benefits of forming an RTM company and give you a much better idea of how much it would cost to exercise the RTM, how long the whole process will take as well as what it will mean for you and your building.

We are also able to advise on the following leasehold issues:

  • agreed lease extensions
  • statutory lease extensions
  • collective enfranchisement
  • agreed purchase of freehold
  • Right of First Refusal
  • Right to Manage
  • Section 20 Consultation
  • drafting new residential leases and amending current residential leases

If you would like to speak to a member of our property team to discuss your options call us today on 01689 323050. Or simply submit your details on the form above and we will contact you shortly.

Right of First Refusal

What is Right of First Refusal (RFR)?

There are some exceptions but the Landlord and Tenant Act 1987 (LTA 1987) stipulates that a landlord must first offer the right to buy to qualifying leaseholders of the building if they wish to sell the freehold.

This process is usually initiated by the landlord serving offer notices on the qualifying leaseholders setting out their offer to sell and the period in which qualifying leaseholders must accept if they wish to purchase. The landlord cannot sell the freehold interest to another party during this consideration period nor offer the freehold interest to someone else at a lower price than that offered to the qualifying leaseholders for a period of 12 months from the notice.

If a landlord sells the freehold without first offering it to qualifying leaseholders pr at a lower price, then the qualifying leaseholders can force the new owner to sell the freehold interest back to them at the price the new owner paid by serving a notice on the new owner. The landlord may also be liable to a criminal prosecution (with a current maximum fine of £5,000) and/or a civil action.

Price

The landlord will usually either set the price for the freehold or confirm that the property is going to be sold at auction in the offer notice. If the landlord sets the price then you cannot challenge the amount, you either accept the sum and proceed with the purchase or you do not. If the landlord says the property is going to auction, then the price is set at the auction and you pay this amount.In both cases you will need to accept the offer in the period set out in the offer notice and with the necessary majority of qualifying leaseholders. There are other qualifying criteria which we can go through with you.

Benefits of RFR

If you are successful in purchasing the freehold then you can:

  • vary the leases so that ground rent is reduced to nil;
  • if agreed with the other leaseholders, amend your leases to remove restrictive covenants which may make your flat more difficult to sell;
  • extend your leases to 999 years for no premium;
  • manage your building.

​Alternative to RFR

If enough of you wish to purchase the freehold but are put off by the price put forward by the landlord, then you may qualify for collective enfranchisement where the price is negotiated between the parties. We can discuss this with you in more detail.

How can CWJ help?

If you receive an offer notice from your landlord to sell the freehold, or you are concerned that your landlord has sold the freehold without first offering it to you, then we can assist.

When you contact us, we will talk you through some of the initial concerns that you may have regarding costs and the procedure involved.We will also discuss the qualifying criteria.

 

Lease Extension FAQs

1.   I would like to extend my lease. How can I do this?

The first thing we will ask you is to confirm the current length of the term of your lease, i.e. whether it is below 80 years, or not as our next advice will mainly depend on the answer to this initial question. We will then take you through an explanation of the two types of lease extension procedures: informal or statutory including the pros and cons. Your legal costs will depend on which route you opt for.

2.   What is an informal lease extension?

Often, the most straightforward and cost-effective way to obtain a lease extension is via direct informal negotiations with the Landlord. The main areas to be negotiated are the amount of money (the “premium”) to be paid to the landlord for the lease extension and the number of additional years that are to be added to the Lease. The landlord may also take this opportunity to increase the ground rent if they will not agree a statutory lease extension.

3.   My lease term is about to drop under 80 years, what should I do?

In this case, we will advise that it is best that you serve a Notice under the 1993 Act as soon as possible, as once the term drops below 80 years the premium payable increases substantially.

4.   What is a statutory lease extension?

Under the Leasehold Reform Housing and Urban Development Act 1993 ("the 1993 Act") normally as long as you have owned the flat for more than two years you are entitled to a lease extension of 90 years on top of the unexpired term and your ground rent will be reduced to zero (“a peppercorn”).

5.   What is the first step I need to take under the statutory process?

The first step is to obtain a valuation report from a surveyor as to how much should be paid for the lease extension. Once this figure has been obtained, we will then prepare and serve the Notice of Claim on your Landlord. This officially starts the process and will set out the premium you want to pay.

6.   What happens once the Notice of Claim is served?

The Landlord has a period of two months to serve their Counter Notice. In this they will insert the figure they have been advised to be paid for the lease extension. It is quite usual that their figure will be significantly higher than the figure set out in your Notice of Claim, this is to allow room for negotiation.

7.   What happens once the Landlord’s Counter Notice is served?

After both Notices have been served, the surveyors for each party have a further period of two months to try to negotiate an agreement on the premium.

8.   What if the parties cannot reach an agreement?

If the surveyors for both parties cannot reach an agreement within 6 months from the date of the Counter Notice then it will be necessary to make an application to the First-tier Tribunal (Property Chamber) ("FTT") who will then decide what figure is payable.

9.   Who pays the legal and valuation costs?

Under the law, if you are a leaseholder, then you are responsible for your own fees and for landlord’s reasonable legal and valuation costs for certain parts of the process but not for Landlord’s costs relating to any FTT application.

10.   Do I have to carry out a valuation?

We strongly advise that you do carry out your own independent valuation before serving a Notice of Claim, as the figure you propose in this Notice must be reasonable. 

11.   I am a leaseholder and am agreeing the premium informally with the Landlord. Do I still need to undertake a valuation?

If you are happy with the Landlord’s premium offer, you do not need to carry out your own valuation. However, if you want to find out whether the offer made by the Landlord is reasonable, we would advise that you get a valuation expert’s opinion. 

12.   I am a potential buyer and do not meet the two-year ownership rule requirement. What can I do?

Not to worry. In such cases, we advise that the Seller, who has probably owned the property for at least 2 years, serves the Notice of Claim on exchange of contracts and assigns the benefit of this Notice to you on completion. We will either draft the initial Notice or review the Notice drafted by the Seller’s solicitor before it is served.

We will also review the terms of the Deed of Assignment – the document which formally assigns the benefit of the initial Notice from the seller to you.

13.   I am a personal representative and want to extend the lease but do not meet the two-year ownership rule requirement, can I still extend the lease?

You have two years from the date of when the Grant was issued to serve a Notice of Claim. This can then be assigned to a buyer if you are selling the property.

14.   Under the statutory procedure, what will be the terms of my new lease?

There are legal limitations for the terms on which the new lease can be granted, i.e.:

  1. An extension of 90 years on top of the unexpired term of the lease;
  2. Zero ground rent (a “peppercorn”) will be charged for the whole of the term;
  3. The terms of the existing lease will remain the same save for reasonable modifications and certain exclusions and additions allowed under the law.

15.   I have a mortgage on my property. Does this matter?

In relation to a statutory lease extension, no. The mortgage will be transferred from your old lease to your new extended lease automatically by the land registry. In relation to an informal lease extension we will contact your mortgage company on your behalf to transfer the mortgage from your old lease to the new extended lease. This is usually an administrative process and mortgage companies sometimes charge a fee for this. 

Get in touch with our lease extension solicitors in Orpington today.

For further information about extending your lease and collective enfranchisement, please contact our Orpington office or you can request a call back.