Although each lease extension or freehold acquisition is different, there are many issues that arise regularly. These are outlined below:
What is leasehold enfranchisement?
This is the process of increasing the value of your flat by either buying your freehold or extending your lease.
Do I qualify?
If you own a flat you probably qualify for either lease extension or freehold acquisition. For freehold acquisition it may be necessary to ensure that sufficient other owners at your property also qualify. Legislation states that you need to have owned a flat for at least two years before you are entitled to extend your lease, but there is no such rule for freehold acquisition.
However, terms outside the legislation can always be negotiated even if the individual or block does not qualify, depending on the attitude of the freeholder.
What are the costs involved?
Each transaction we manage is different and our fee is tailored to meet specific requirements. Following an initial meeting we will provide you with a recommended approach including our fees and any other costs known at that stage. Flat owners will know from the outset the different stages of the project and the maximum cost of each stage.
The main expenses for lease extension and freehold acquisition transactions are the premium (the amount payable to the freeholder), our fee, and valuation and legal fees. In most cases flat owners must also reimburse the freeholder’s reasonable legal and valuation fees.
Most lenders are happy to add the costs of a lease extension or freehold acquisition transaction to a mortgage since it increases the quality of their security on a property.
Why should I take part in a lease extension or freehold acquisition transaction when I already own my flat?
Many flat owners understandably do not appreciate the difference between leasehold and freehold. When you buy a flat you buy a lease, which is in effect a long-term rental contract. The freeholder owns the building and, when each lease expires, the freeholder is entitled to have the flat back and create a new lease that may then be sold to someone else, subject to your rights to a short lease.
Acquiring the freehold also gives flat owners much more control over their homes. They can decide how their building should be managed and can best decide how to utilise the service charges.
As an alternative, extending your lease also enhances the value of your property.
What will happen once the freehold has been acquired?
If the main reason for acquiring the freehold is a shortening lease, once the freehold has been acquired it may then be necessary for the lease term to be increased, typically to 999 years.
At the same time the ground rent may be abolished and clauses in the lease that have caused problems in the past may be altered or even deleted. It may even be appropriate for a new lease to be drafted. Participants in the freehold acquisition will not have to pay a further premium for this, only legal costs. The solicitors who convey the freehold acquisitions we manage will usually make proposals about lease changes at a follow-up meeting.
If the main reason for acquiring the freehold is perceived excessive service charges by the existing freeholder, it will be necessary for representatives of the new freehold company to appoint a managing agent or organise works themselves. There may be special arrangements in terms of buildings insurance. Leasehold Solutions can provide detailed guidance in individual cases.
A managing agent looks after the communal gardens and general external maintenance. What will happen after we acquire the freehold?
If the managing agent has been appointed by your freeholder, once you have taken over the freehold you will be able to replace the company with another of your choosing if you wish. Again, Leasehold Solutions can provide detailed guidance in individual cases. If your managing agent is already appointed by a management company owned and run by flat owners, this situation will probably continue after freehold acquisition. Management arrangements are unaffected by lease extension.
Why can’t I just leave things as they are?
You can if you wish, but they will invariably get worse. The shorter a lease becomes, the more expensive it becomes to rectify the problem later. We have heard of examples of the costs at least doubling within a few years, particularly where lease lengths have slipped below the critical 80-year level.
By extending the lease or acquiring the freehold and making subsequent lease or management changes, the saleability and value of the property will be enhanced.