Enfranchisement refers to the legal right of leaseholders to either extend the lease of their property or collectively purchase the freehold from the landlord. This process empowers leaseholders to gain greater control over their property, offering long-term benefits and financial security.
The Leasehold Reform Act 1967 and the Leasehold Reform, Housing and Urban Development Act 1993 granted leaseholders of houses the right to buy the freehold or extend their lease respectively. These Acts laid the foundation for leaseholder enfranchisement in England and Wales, setting the precedent for subsequent reforms aimed at addressing the imbalance of power between landlords and leaseholders. Recently the Leasehold and Freehold Reform Act 2024 has introduced meaningful changes to the Acts.
Leaseholder Enfranchisement: What is the Process?
To qualify for enfranchisement, leaseholders must meet specific criteria, including:
- Qualifying tenants: Leaseholders must be qualifying tenants, which means their lease must meet certain requirements
- Qualifying property: The building must have at least two flats and have no more than 50% of its floor area used for non-residential purposes (excluding common parts)
- Fixed term: The lease must be for a fixed term of more than 21 years
Why & When to Extend a Lease or Purchase the Freehold
Extending a lease or purchasing the freehold can be a prudent decision for leaseholders, particularly in these scenarios:
- Lease Duration: The length of any renewed lease will now be 990 years (increased from 50 years for houses and 90 years for flats).
- Mortgages: Some lenders will refuse to provide a mortgage on a property where the lease will shortly expire.
- Investment Value: Properties with longer leases or freehold status are generally more attractive to buyers.
- Control and Costs: Owning the freehold allows greater control over service charges, ground rent, and property management.
The Enfranchisement Process
- Valuation: Engage a surveyor to determine the premium for lease extension or freehold purchase.
- Notice of Claim: Serve the appropriate legal notice to the landlord.
- Negotiation: Negotiate the terms and premium with the landlord.
- Tribunal: If the parties cannot agree upon the premium payable for the new lease, then the matter can be referred to the First-tier Tribunal (Property Chamber).
- Completion: Finalise the agreement and update the property’s title at the Land Registry.
Considerations and Costs
- Valuation Fees: A professional valuation is essential.
- Legal Fees: Costs for both the leaseholder’s and landlord’s solicitors.
- Premium Payment: The agreed amount for the lease extension or freehold purchase.
- Tribunal Costs: If the process involves a tribunal, additional expenses may apply.
Right to Manage
The Right to Manage (RTM) enables leaseholders to collectively take over the management of their property without buying the freehold. This process requires:
- A formal RTM company.
- Serving notice upon the landlord.
- Majority agreement among leaseholders.
This is a potentially easier and cheaper alternative to enfranchisement and can be an appealing option if managing service charges is the main concern for the leaseholders.
Collective enfranchisement allows leaseholders of flats to jointly purchase the freehold. This option offers increased control over building management and reduces dependence on the landlord.
Attitudes to Leaseholds in the UK
Leasehold ownership is a unique feature of property law in England and Wales. By contrast:
- Scotland: Leasehold structures were largely abolished with the Abolition of Feudal Tenure Act 2000.
- United States and Europe: Freehold ownership dominates, with leaseholds being rare and typically short-term.
- The Leasehold and Freehold Reform Act 2024 has introduced significant changes, including:
- Capping ground rents to nominal amounts.
- Simplifying the enfranchisement process.
- Reducing costs for leaseholders.
- Abolished the need for leaseholders to own the property for a minimum of two years before enfranchisement. This will allow leaseholders to claim a lease extension or to buy the freehold of their house immediately upon acquisition of their property.
Advice to Landlords
Landlords should prepare for enfranchisement requests by:
- Maintaining detailed property records.
- Understanding their legal rights and obligations.
- Seeking early legal advice to handle claims efficiently.
Seeking Legal Advice on Leaseholder Enfranchisement
Navigating the complexities of leasehold enfranchisement requires expert legal guidance. At DTM Legal, we offer tailored advice to leaseholders and landlords, ensuring clarity and compliance every step of the way.
Contact Us:
- Anna Duffy – anna.duffy@dtmlegal.com
- James Holton – james.holton@dtmlegal.com
Choose DTM Legal as your trusted partner for legal excellence and outstanding service.
