Mike Hansom, Solicitor
Do you own a flat?
Is your lease starting to look short?
Do you have a difficult relationship with your landlord?
If so, you are one of thousands of flat owners in London in a similar position. However recent changes in the law mean it is possible to improve the value of your flat, and even take control of the management of the whole building.
A flat with less than 70 years to run on its lease will be difficult to sell. The main reason for this is that banks won’t lend to a potential buyer of your flat if the lease is short. Before you reach this stage, as soon as the number of years left on your lease drops below 80, the cost of extending it will start to rise more steeply.
The answer lies in extending the lease. Sometimes landlords are willing to negotiate a lease extension in return for payment, the amount of which can be agreed by negotiation. Unfortunately, often they are not, or they want payment up front of large amounts to cover their costs, with no guarantee that the extension will ever happen.
This need no longer be something to which your landlord holds you to ransom, thanks to the leaseholder friendly provisions of the Leasehold Reform (Housing & Urban Development) Act 1993.
This Act provides two options:
1. The right to extend their Lease of a flat by 90 years;
2. The right to collectively buy the Freehold from the landlord (Right to Enfranchise).
Lease Extension under the 1993 Act
As a general rule, the shorter the time remaining on your Lease, the more expensive it will be to extend. The first thing to do is look at your lease to establish the number of years remaining. It is always worth asking your landlord/freeholder if they will agree to a voluntary extension without using the statutory procedure, as in some cases, it can work out cheaper.
This is because under the statutory route, you will have to reimburse your landlord their reasonable costs of granting the extension, consisting of:
1. The landlord’s costs of investigating youhave the right to extend the lease under the Act;
2. the landlord’s professional fees for a valuation;
3. The landlord’s reasonable conveyancing costs.
It is compulsory under the procedure to pay your landlord’s costs, and this must be budgeted into the extension.
In addition you will need your own valuation, your costs of following the statutory procedure, and your own conveyancing costs.
Finally, if the terms cannot be agreed using the procedure, it will be necessary to apply to the Leasehold Valuation Tribunal for the matters in dispute to be determined.
Buying the Freehold under the 1993 Act
Alternatively, you and the other flat owners in your building can group together and buy the freehold, providing enough of you are willing to participate. The benefit of this is that you will have increased control over how your service charges are charged, and spent.
In addition, once you have purchased the freehold, the potential arises for you and the other flat owners to grant yourselves lease extensions in the future without having to pay large premiums and costs.
Buying the freehold can be a solution to alleged poor management of the building or excessive service charges. The sometimes strained relationship between landlord/managing agent and flat owner can be put to rest, but beware the landlord’s legally enforceable obligations remain, and will be placed onto the new owners of the freehold, which necessarily means you will continue to have to pay service charges!
Even so, buying the freehold often means there is a reduction in the costs of managing the building as a whole, and an increase in the freedom of the flat owners in its management. It can also mean the value of the individual flats increases, as it is a perceived marketing bonus to sell a flat with a ‘share of freehold’.
However, there are many pitfalls and advance planning is essential, as is the need for the flat owners in the building to maintain a good relationship. It is also worth considering handing management of the freehold to a managing agent, as the obligations on a freeholder are onerous.
The procedure is similar in many respects to the lease extension under the same legislation, and the requirement to pay a premium and the landlord’s reasonable costs remains. However these can be split between the flat owners taking part.
If the premium for the Freehold cannot be agreed, the parties will have to apply to the Leasehold Valuation Tribunal (LVT) for the Tribunal to determine the price.
