Lease enfranchisement and extension explained

Leasehold enfranchisement and extension explained

Your rights as the owner of a leasehold house

While new build leasehold properties have made the news recently (see our recent article), owners of older leasehold houses face a challenge of their own.

Once the residual term of a lease falls below 85 – 90 years the value of the property starts to diminish. Equally worrying is the fact that its mortgageability also starts to diminish.

So what are your rights as the owner of a leasehold house with a diminishing lease term?

Your lease is effectively a legal agreement with your landlord (the freeholder). It gives you the right to live in the property for a set amount of time.

Leasehold properties are common in South Yorkshire (where we are based) and we handle dozens of transactions every month. Many of the older terraced properties we deal with locally have lease terms of around 800 years, but terms of 90 or 120 years are also widespread. So leaseholders who bought in the 1970s and even 1980s may run into difficulties unless they act soon.

What should I do if my lease is less than 90 years?

In these circumstances, leasehold enfranchisement may be an option. This usually means buying the freehold of your property but it can also mean extending your lease. In either case, you must meet certain conditions:

  • * As the owner of a house you may be able to extend your lease by up to 50 years (90 years for a flat).
  • * To qualify you must have held the leasehold interest for not less than two years.
  • * Furthermore your lease term should (originally) have been granted for 21 years or more.
  • * If the lease is under 80 years, you will have to pay an additional fee to extend it. This is calculated as 50% of the ‘marriage value’, i.e. the extra value an extended lease would add to the property.

There are effectively two routes to enfranchisement, an informal route and a formal (statutory) route. The formal route can be an expensive and lengthy process. The informal route is less prescriptive and is more concerned with striking a deal acceptable to both your landlord and yourself.

Either way it is advisable to seek professional advice not only from a solicitor but also a valuation surveyor and, arguably via neighbours who may have gone through the same process.

(The issue of diminishing leases is, of course, an entirely separate matter from the recent rent review controversy in new build leases. Many older leases do not contain any provisions for the Ground Rent to be reviewed. It is also a separate matter from any service charge issues which may or may not be applicable to the property in question.)

Help for leaseholders

At PM Property Lawyers we are happy to discuss your options – call us on 0114 249 6926 or email info@pmpl.co.uk.

There is more information on buying a leasehold property here: Buying a leasehold property resource. The Leasehold Advisory Service also has a very useful website here.

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