Extending a lease or buying a freehold

Why do I need a lease extension?

When you buy a leasehold property, you are buying the remaining years on the original lease granted by the original freeholder (landlord) to the first leaseholder (flat owner) i.e. the first person who bought the lease from new.  From that date, the lease continues to reduce in length. 

The shorter the lease becomes, the more difficulties you will find you have in selling it. 

You should think about extending a lease with less than 90 years left to run.  If you do not know how long you have left to run, let us know and we will help you check this.    

Once the remaining lease term drops below 80 years, the lease premium (the purchase price payable to the landlord) becomes more expensive. 

When the remaining lease term drops below 80 years, buyers may also want a lease extension carried out before they purchase the property – if their solicitor is prudent, the buyer will have been warned that a lease extension is likely to be necessary during their ownership, at a cost to them.

Mortgage lenders do not like to lend on ‘short’ leases.  When a lease drops below 70 years lenders may refuse to lend on the property; it can make it very difficult to sell your property, as you are then limited to cash buyers who are happy to take on the property without a lease extension – such buyers are also likely to want a significant reduction in the purchase price in the knowledge they will have to pay for the lease extension themselves in the future.

As your lease becomes shorter, it will become more expensive to extend your lease.  It is therefore more cost effective to extend your lease at your earliest opportunity.    

When should I extend my lease?

You should not let your remaining lease term drop below 80 years left to run; otherwise there is a significant increase in the premium payable to your landlord, as an additional form of consideration known as ‘Marriage Value’ becomes payable to the freeholder.

How can I extend my lease?

 There are ordinarily two options available to you:

  • A Statutory Lease Extension
  • An Informal Extension

Statutory Lease Extensions:

The Leasehold Reform Housing and Urban Development Act 1993 enables most flat owners who have been the registered owner of their leasehold property for at least two years to compel their landlord to grant them a lease extension.  The terms of the lease extension are fixed, so that you receive an extra 90 years on top of your remaining lease term, and that the ground rent becomes a ‘peppercorn’ (this is a legal way of recording a nil ground rent). 

The process is quite onerous and it is vital that you seek expert legal advice from a an experienced specialist lease extension enfranchisement solicitor. 

Please see contact Laura Russell or telephone 023 8082 0528 to discuss your particular circumstances further and obtain our statutory lease extension information sheet for further information on the statutory process and costs involved.

Informal Lease Extensions:

Unlike statutory lease extensions, there are no minimum ownership requirements for a informal lease extension. 

A informal lease extension is one in which the parties negotiate the terms.  The landlord is not obliged to grant you a lease extension in this way and, much like a house purchase, until the final documentation is signed and completed, both parties are at liberty to withdraw from the transaction. 

The advantage however is that you are able to ‘top up’ your lease; for example if your lease is currently at 83 years remaining, you may want to simply add another 16 years to bring the term back up to 99 years in order to sell your property.  Your freeholder can also retain a ground rent in a informal lease extension – but you should be wary if they try to increase it.  By buying a shorter term and allowing the freeholder to keep a ground rent income, you are often able to pay less of a premium for your lease extension, and the legal costs will usually be lower compared to the statutory option. 

Please note that this is not an exhaustive advice on lease extensions and you should discuss your individual circumstances with us.  You will require individual specialist advice and separate costs estimates for more complex situations such as having an absent/missing/insolvent freeholder, were you are acting under a Grant of Probate, or where you want to assign the benefit of a Statutory Notice to your buyers.

 

Acquiring the Freehold

 

How can I acquire the freehold of my flat?

There are ordinarily two options available to you:

  • Collective Enfranchisement
  • Accepting a ‘Right of First Refusal’

Collective Enfranchisement:

Collective Enfranchisement is a legal term used for group of leaseholders (flat owners) proposing to buy the freehold of their building in accordance with a piece of law which entitles them to do this. 

Buying the freehold from your landlord can be done privately, by negotiating with the freeholder, which we can assist you with, but if the landlord does not want to sell the freehold to you voluntarily the law provides that a group of leaseholders (meeting the necessary eligibility requirements) the ability to compel the landlord to sell the freehold to them.   

You will need to satisfy a number of complex criteria in order to proceed to acquire the freehold – we will need to give you expert advice on this however, below are some of the main points to consider:

There must be at least two flats in the building

At least two thirds of the flats should be let to “qualifying leaseholders” –essentially this is a long lease at a low ground rent, but some leaseholders may still be excluded, so we would check this for you as part of your instructions to act for you

At least 50% of the qualifying leaseholders must be prepared to join in acquiring the freehold

No more than 25% of the floor area has commercial use

The law relating to Collective Enfranchisement is very complex and full of pitfalls; you should seek the expert advise of a solicitor experienced in enfranchisement.  Please see contact Laura Russell or telephone 023 8082 0528 to discuss your particular circumstances further and obtain our collective enfranchisement information sheet for further information on the statutory process and costs involved.

Accepting a Right of First Refusal:

Subject to certain eligibility requirements,  a landlord wants to dispose of their freehold ownership will first need to offer it to the flat owners in the block;  they will serve the flat owners with  Offer Notice under Section 5 of the Landlord and Tenant Act 1987 informally known as a ‘Right of First Refusal Notice’. 

In order to take advantage of the right to acquire the freehold, enough of the flat owners will need to join together to serve an Acceptance Notice on the landlord.  More than 50% of the qualifying leaseholders must be willing to join in this process.  So, for example, there are 10 flats in the building then at least 6 of you must join in with this procedure.

It is vital that you seek expert legal advice straight away if you have received such a notice, as if you miss the deadline to serve the Acceptance Notice, the landlord is free to sell the freehold to a third party.  Please see contact Laura Russell or telephone 023 8082 0528 to discuss your particular circumstances further and obtain our ‘right of First Refusal’ information sheet for further information on the process and costs involved.

 

Trethowans LLP are members of ALEP

ALEP (the Association of Leasehold Enfranchisement Practitioners) is an association of professionals experienced in the residential leasehold sector. Leasehold enfranchisement includes the processes of lease extension, freehold acquisition and correction of management problems within residential leasehold properties.

Membership of ALEP is an assurance to leaseholders and freeholders that they can be sure of a consistently high level of service, integrity and professionalism. All member firms are rigorously vetted so you can be confident that we have a proven track record in leasehold enfranchisement. 

Find out more at: http://www.alep.org.uk/

Meet the team

Mark Daniels
Partner & Head of Residential Property Poole
Residential Property
Poole
01202 339007
0779 381 6844
Residential Property
Tim Higham
Partner & Head of Residential Property Group
Residential Property
Salisbury
01722 426985
07917 756 132
Residential Property
Katie Bickerstaff
Associate
Residential Property
Poole
01202 339037
Residential Property
Catherine Duthie
Associate
Residential Property
Southampton
023 8082 0459
Residential Property
Halina Tomlinson
Senior Associate & Head of Residential Property Team Southampton
Residential Property
Southampton
023 8082 0508
07500 935696
Residential Property
Michele White
Associate
Residential Property
Salisbury
01722 426963
Residential Property
Mariana Crawford
Associate
Residential Property
Salisbury
01722 426916
07880 716970
Residential Property
Julie Culverhouse
Solicitor
Residential Property
Southampton
02380 820476
Residential Property
Peter Hawker
Solicitor
Residential Property
Poole
01202 339042
Residential Property
Laura Russell
Solicitor
Residential Property
Southampton
023 8082 0528
Residential Property
Lyn James
Conveyancing Executive
Residential Property
Poole
01202 339029
Residential Property
Jon Laidler
Senior Conveyancing Executive
Residential Property
Salisbury
023 8082 0481
07881 343969
Residential Property
Natasha Neal
Conveyancing Executive
Residential Property
Salisbury
01722 426939
Residential Property
Jack Newton
Conveyancing Assistant
Residential Property
Salisbury
01722 426978
Residential Property
Jane Bilton
Legal Secretary
Residential Property
Salisbury
01722 426907
Residential Property
Gemma Butler
Legal Secretary
Residential Property
Southampton
02380 820 479
Residential Property
Hannah Forrest
Legal Secretary
Residential Property
Salisbury
01722 426926
Residential Property
Nichola Gurd
Legal Secretary
Residential Property
Southampton
023 8082 0540
Residential Property
Fiona Hart
Legal Secretary
Residential Property
Salisbury
01722 426993
Residential Property
Karen Maddams
Legal Secretary
Residential Property
Southampton
023 8082 0578
Residential Property
Jennifer Merrington
Legal Secretary
Residential Property
Poole
01202 339043
Residential Property
Sarah Miller
Legal Secretary
Residential Property
Southampton
023 8082 0471
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Harriet Newell
Legal Secretary
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Salisbury
01722 426968
Residential Property
Rebecca Ormsby
Legal Secretary
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Salisbury
01722 426919
Residential Property
Louise Robbins
Legal Secretary
Residential Property
Poole
01202 339047
Residential Property
Sonia Silman
Legal Secretary
Residential Property
Poole
01202 339018
Residential Property
Carole Stevens
Legal Secretary
Residential Property
Poole
01202 339 026
Residential Property
Anna Taylor
Legal Secretary
Residential Property
Poole
01202 338550
Residential Property
Jane Usher
Legal Secretary
Residential Property
Salisbury
01722 426944
Residential Property
Tracey Wilson
Legal Secretary
Residential Property
Southampton
02380 820548
Residential Property

First person - Property

Tim Higham