Leaseholds (Enfranchisement & Extension)
The right to leasehold enfranchisement (also known as collective enfranchisement) is the right for flat leaseholders to join together (under the Leasehold Reform Act 1993) to force their landlord to sell the freehold to their block of flats to them. Leasehold enfranchisement applies only to residential property. When you buy the freehold, you become both landlord and tenant and can extend the lease of your house or flat by granting yourself a new lease of up to 999 years.
There are a number of reasons why it is beneficial to extend your lease. It prevents the value of the property diminishing – exercising your right to enfranchise allows you to grant yourself a very long lease, often for 999 years, at a ‘peppercorn rent’ (i.e. your lease effectively becomes rent free).
Buying a freehold enables tenants to take direct control of maintenance and management of their building – avoiding the need for overpriced service charges and creating the chance to improve the quality of management services by removing the need for external management companies. Service charge disputes are one of the main reasons why tenants often decide to go ahead with leasehold enfranchisement.
Remortgaging may become easier as many lenders prefer the additional security of freehold over leasehold properties.
Leasehold enfranchisement provides a more secure family inheritance.
The building’s value is likely to increase as some purchasers avoid buying a leasehold property.
The cost of buying the freehold of a lease with under 80 years left increases considerably – for leases under 80 years the landlord is entitled to 50% of the ‘marriage value’ (i.e the difference in the value of the property before and after you exercise your rights to enfranchise). There is no marriage value payable if a lease has over 80 years left.
Any leaseholder has the right to extend their lease by 90 years. The main criteria for leasehold enfranchisement under the Leasehold Reform Act 1993 are:
- The building must have at least two flats
- At least half of the flats must have tenants who want to participate
- The original lease must have been for at least 21 years
Unlike lease extension, when you exercise your right to enfranchise there is no requirement for a tenant to have owned a flat for at least two years.
As Chartered Valuation Surveyors and RICS Registered Valuers, we are best qualified to undertake this.