Extending a Leasehold Property: Is it Possible?
Under UK law, you have a right to apply to either extend the leasehold of a property or purchase the freehold from the freeholder. Below we look at different ways you can do this…
If you own a property, but not necessarily the land the property sits on, this usually falls under the leasehold umbrella. If you are looking to sell your property, owning a lease can devalue your home, which is why many leaseholders look to extend the lease or get rid of it all together.
There are quite a few different paths you can go down if you want to apply to purchase or extend the leasehold on your property. To extend the leasehold, you can go down either a formal or informal route. To buy the leasehold, you can do this by freehold purchase, freehold enfranchisement or collective enfranchisement.
In this article, we’ll be exploring these potential options to help you make a more informed decision. Take a look…
Some Important Definitions
What is a Freehold?
A freehold is where you own the property and the land it sits on outright. As the freeholder you are responsible for looking after the property, for instance its maintenance and insurance.
What is a Leasehold?
A leasehold is where you own a property on the land, leasing the land from the freeholder. The property will have a lease on the land, and this is usually more long-term, for instance 100 years.
You will have a contract with the leaseholder which sets out in detail what you are responsible for. When the lease expires, the ownership will revert back to the freeholder.
What to do if You Have a Lease
The less time that is left on the lease, the less valuable the property can become. Therefore, if you don’t have long left on your lease it may be hard to get a mortgage on the property.
Acquiring the freehold may add substantial value to the flat, but this can be expensive, and often the freeholder will not comply. If you decide you want to apply for complete ownership of the property, you will have more control over your home, and future dealings with the property can become much easier. Again, though, this can be expensive and practically impossible to achieve.
Considering these routes have their issues, there are some other routes to potentially take. These include:
Collective Enfranchisement is the right for leaseholders of a block of flats or apartments to come together and buy the freehold of that building. The right to collective enfranchisement was granted by the Leasehold Reform Housing and Urban Development Act 1993. For this, the following criteria applies:
For the Building to Qualify
- At least 50% of the flats in the building agree must want to purchase the freehold.
- The building must contain at least 2 flats.
- At least 2/3 of the flats are held by qualifying tenants.
- At least 75% of the internal floor area (excluding common areas) is used for residential purposes.
To be a Qualifying Leaseholder
- Have held the lease for at least 2 years.
- Not hold a business or commercial lease.
- Have a lease which was originally granted for at least 21 years.
- Not hold your lease from a landlord that is a charitable housing trust.
- Not own more than 2 flats in the building.
The Process of Collective Enfranchisement Includes:
- A participation agreement in order to set out how decision are going to be made between you and all the other leaseholders.
- You will need a surveyor to provide advice on the ‘valuation’ of the building, and any extra maintenance costs. A solicitor will help you with the initial notice and gathering any information you need.
- Deciding on a nominee purchaser who will acquire the freehold and become the new landlord if the enfranchisement is successful. They will be responsible for the management of the building and its finances.
- Serving an initial notice with a formal written document expressing your wish to purchase the freehold.
- If successful, you must figure out the next steps for the future of the building.
In order to apply to for a lease extension, the leaseholder must have owned the property for 2 or more years. If you qualify, you may be able to extend your lease by 90 years. You can apply to extend your lease either formally or informally.
The Formal Route
With the formal route, the leaseholder serves a notice to the freeholder putting forward an offer to extend their lease by the statutory 90 years. This route offers more protection to a leaseholder if things were to go wrong. Another benefit is that your ground rent will be reduced to nothing.
It can also be a secondary option if you have tried the informal route first, but could not agree on terms or price with your freeholder. One downside of the formal route is that it is far more expensive upfront compared to the informal route.
The Informal Route
This route involves having a conversation with the freeholder and asking if they are willing to extend the lease on a far more informal basis. This option will offer you more flexibility, as informal extensions mean you can extend for a much shorter time.
In addition, you will only have to cover your legal and valuation costs, whereas with the formal route you will have to pay both yours and the freeholder’s. However, in the long-term this may not be that cost-effective if you end up paying for the process again in a few years.
Tring to negotiate informally means there is little legal framework the freeholder is required to follow. For instance, if they do decide to extend your lease it could be on whatever terms they like, for instance increasing the rent.
What to do if You Have an Absent Landlord?
If the landlord cannot be found after you have tried to contact them, it doesn’t mean you can’t acquire an extension or purchase the freehold on your building.
If the freeholder was a company which has gone into receivership or ceased trading, you can contact the Receiver or Treasury Secretary who will be able to authorise the sale.
If the freeholder simply cannot be contacted, you can apply to a court for a Vesting Order which allows the court to sell the freehold to you.
If you now feel more confident in deciding which is the best route for you to go down, we do recommend seeking legal advice, as it can be a very confusing and complicated process to tackle alone! Good luck on the next steps for your leasehold property.
Please be advised that this article is for general informational purposes only, and should not be used as a substitute for advice from a trained legal professional. Be sure to consult a legal if you’re seeking advice about your leasehold property. We are not liable for risks or issues associated with using or acting upon the information on this site.
Please be advised that this article is for general informational purposes only and should not be used as a substitute for advice from a trained legal professional. Be sure to consult a lawyer/solicitor if you’re seeking advice on the law. We are not liable for risks or issues associated with using or acting upon the information on this site.