If you’re thinking of a lease extension but wondering if there are any other ways in which you can increase the control you have over your home, you need to be aware of bothleasehold enfranchisement (or collective enfranchisement) and the right to manage.
Lease enfranchisement is an alternative to extending your lease, but it does require other leaseholders in your building to join in this process. Enfranchisement requires a significant amount of cooperation between leaseholders and so you will, to some degree, need to ‘get on’. It is, however, more effective than a simple lease extension and is definitely something to be considered if a significant number of leaseholders in your building are looking to extend their lease. The benefit of enfranchising is that once you own the freehold you have the ability to grant yourself a 999 year lease extension at nil ground rent, for no premium, and secondly you gain control of the service charge budget meaning that you can control what is spent on the property.
The Leasehold Reform, Housing & Urban Development Act 1993 created the right for a group of qualifying leaseholders to compel the landlord to sell the freehold interest to them.
To qualify for this right the leaseholders must satisfy the following criteria:
Your lease must have originally been granted for a period of 21 years or more; and
If you are collectively exercising enfranchisement, then the building must contain at least 2 flats and 50% of the qualifying leaseholders must want to participate.
There are some very limited excpetions to this however.
This differs to a leasehold extension in that when the leaseholders exercise their right of enfranchisement, they actually become the landlord as well as the tenant. This gives them the ability to grant themselves a new 999 year lease.
Leasehold enfranchisement provides an effective alternative to extending a lease in that it will help make your property more appealing to purchasers by making it mortgageable (lenders generally insist on a minimum length of lease before agreeing to a mortgage) and hence, saleable. It is a sensible option if you can manage the tricky task of both convincing enough other qualifying tenants in your block to share your objectives and keeping them on board throughout the enfranchisement process itself.
The cost of leasehold enfranchisement normally involves:
Getting a specialist surveyor’s enfranchisement valuation;
Paying for the landlord’s reasonable costs (including legal and valuation fees);
The costs of taking the claim before a Leasehold Valuation Tribunal (if / when necessary).
Your own legal costs
The above costs are in addition to the price payable to the freeholder for the freehold itself.
After you acquire the freehold you will then have the costs involved in managing the freehold building itself (i.e. if done collectively, you may wish to appoint a management company)
Right to Manage
The right to manage was created by the Commonhold and Leasehold Reform Act 2002 and provides that qualifying leaseholders have the right to compel their landlord to hand over the management of their freehold building to them. After exercising the right, the leaseholders no longer have to deal with the landlord or the existing management company (or indeed any management companies) if they want to do something with the building. The Right to Manage process is a ‘no fault’ remedy and so you do not need to show that your freeholder, or the appointed managing agents, have done anything wrong.
The right to manage can only be exercised if 50% of the ‘qualifying tenants’ in the building wish to do so. The right does not apply if more than 25% of the internal floorspace in the building (excluding communal areas, such as hallways) is used for commercial purposes. So, for example, if you live in a two storey building, with the whole ground floor being used as a shop, you will not be eligible for the right to manage. To be a qualifying tenant, the following criteria must be established:
Two or more leases must have originally been granted for a period of 21 years or more;
The lease cannot be non-residential nor can it be granted by a Charitable Housing Trust; and
2/3rds of the building must be occupied by qualifying tenants.
Normally the leaseholders exercising this right will set up a right to manage company, run by the leaseholders as directors. This company then becomes the legal entity dealing with the management of the freehold building.
The process involved in taking over the right to manage differs from extending leases in that the period of the tenant’s lease is not actually lengthened; rather the right to manage affects the rights of the tenants during their current lease.
The right to manage provides an effective way of potentially increasing the value of your flat by better management of the block, or can save you money if your current service charges are inflated or you receive a poor service or standard or work for what you actually pay for. Prospective buyers are more likely to consider a flat if it is situated in a well maintained, clean and tidy block. The Right to Manage does not actually lengthen your lease but it is worth considering if you are happy with the length of your lease.
The cost of exercising the right to manage will normally involve paying:
Your own solicitors costs and disbursements;
Any reasonable costs incurred by the landlord (including their legal fees); and
The administrative costs incurred in the right to manage company formation.
It is worth noting that you do not have to pay the freeholder a ‘premium’ for acquiring the right to manage, you only have the associated professional fees. As such, it is something that should definitely be considered by leaseholders.
Can I buy a part of the freehold interest instead of extending my lease?
Other than collective enfranchisement, there is no legal method of buying a section of a freehold. Sometimes a landlord will offer to sell a section of the freehold interest along with a leasehold extension. In these cases it is likely that the landlord will expect to take an additional fee for this.
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