Leasehold Problems?

Owning a leasehold property can however bring with it a number of difficulties. The main complaint is normally where the freehold of the building is owned by a third party who is not one of the leaseholders of the flats. This can lead to a number of problems with short leases, expensive management fees, lack of control of management of the building, outdated leases and disputes with the freeholder.

Buying your freehold

Buying the freehold of the building is a possible solution to these issues. As a leaseholder of a flat you have a statutory right to buy the freehold, together with other leaseholders, in a process known as Collective Enfranchisement.

There are certain criteria that must be met before you can apply to the freeholder for purchase of the freehold and they are broadly as follows:

• the flats are contained in a self-contained building or part of the building;
• not more than 25% of the building is non-residential;
• two or more flats are held by qualifying leaseholders;
• the total number of flats held by those leaseholders is not less than two thirds of the total number of flats;
• participating leaseholders must be those of flats comprising not less than 50% of the total number of flats at the date of service of the notice.

If you can satisfy the above criteria, then the matter can proceed by serving an initial notice on the freeholder. This starts a process, and timetable, where ultimately if no agreement can be reached, the matter can be resolved by a Leasehold Valuation Tribunal. Happily this is only for a minority of cases as the costs of pursuing matters before the Leasehold Valuation Tribunal usually exceed the sums in issue, and this encourages both sides to take a practical, economic view of the situation and settle the matter.

You should always start off at the outset with a proper valuation from an experienced valuer so that you can calculate the likely costs of the freehold and obtain an estimate as to the likely legal costs of pursuing matters. You will need to bear in mind that you will be liable for the reasonable costs of the freeholder (legal and valuation) in addition to your own.

It is generally preferable to approach the freeholder on an informal basis and see if agreement can be reached prior to serving any initial notice. If you can reach an informal agreement it is usually a quicker and cheaper method of dealing with matters. There is no guarantee however that agreement can be reached, and you may just end up wasting time. Some freeholders have a policy of not entering into any discussions prior to an initial notice being served.

What are the benefits?

Assuming that you are able to purchase the freehold either voluntarily or compulsorily one of the main benefits is that you are able to extend or modernise your lease. Short leases can be extended then to 999 year leases and obsolete leases can be modernised to make them saleable or mortgageable. Short leases will be less valuable, and some lenders will be hesitant to lend upon them as the period of unexpired lease gets shorter. This can be a problem when it comes to selling or remortgaging. An extended lease can also add value to your property.

If however you cannot get sufficient numbers of people to participate in a Collective Enfranchisement process, or for various reasons you are not interested in so doing then there is an alternative statutory right to extend your lease.

Extending your lease

If you are considering extending your lease, there are a number of legal requirements that must be met. The most significant are as follows:

• you must hold property on a long lease;
• the property must be a flat;
• you must have owned the lease for a period of two years prior to the service of the notice.

Exercising the right enables you to extend your lease by a further term of 90 years at a peppercorn rent. As with Collective Enfranchisement the matter can be initiated by discussions with the freeholder or by serving notice, or a combination of the both.

Again if matters cannot be agreed then the Leasehold Valuation Tribunal can rule as a last resort, but this is only a small number of cases.

Whether you buy the freehold or extend your lease, the statutory process can be slow and expensive. You should always obtain specialist legal advice from a solicitor and valuer experienced in dealing with such matters to avoid some common pitfalls.