Understanding Leasehold Enfranchisement

Buying or renting a home can be a complicated matter in itself. So, when terms such as “leasehold enfranchisement” begin getting batted around too, it can be easy to let confusion take over. Yet, being aware of terms such as this is an important consideration for any buyer or renter. While it can feel overwhelming, there are many resources available to clear up any questions or doubts you may have concerning the process – including in Articles page.

So, what is Leasehold Enfranchisement and how might it affect you?

Leasehold vs Freehold

When purchasing a home or flat, you will be informed whether it is a “freehold” or “leasehold” property. If it is a freehold property, then you are in luck! Once your purchase is completed, you will own the building – as well as the land it was built on – outright. On the other hand, if it is a leasehold property, your ownership is only valid for a set period. During this period, you will effectively rent the property from the freeholder via either monthly or annual payments.

The length of the lease can vary significantly. Depending on this, you may be required to begin the process of extending, or even obtaining outright, the lease to your property. This process is known as Leasehold Enfranchisement.

When you purchase a leasehold property, you enter into an agreement with the owner of the land on which your property was built – otherwise known as the landlord or freeholder. Many leases are long-term agreements, ranging from around 90 to 120 years, though some may be significantly shorter or longer. For example, many flats in new developments have a lease of 999 years.

The length of time left on your leasehold agreement is important for a number of reasons. First of all, once your lease comes to an end, the property reverts back to a freehold property, meaning that ownership is solely that of the freeholder. Furthermore, the length of time left on a lease can impact the value of a property. Generally, the shorter the lease, the less it is worth, and once it falls below a certain threshold, you may face even more complications. This is where Leasehold Enfranchisement comes in.

What is Leasehold Enfranchisement?

The government has actively aimed to protect leaseholders against short leases through Leasehold Enfranchisement. These rights, which are supported by the Leasehold Reform, Housing and Urban Developments Act 1993, give leaseholders the right to extend their lease or buy the property outright. As the leaseholder of the property, you may exercise these rights either individually or collectively with other leaseholders to effectively force the freeholder to either grant a lease extension or to sell their freehold interest.

Extending the Lease or Purchasing the Freehold

Your Leasehold Enfranchisement rights can be approached in a number of ways. Under the Leasehold Reform Act 1967, qualifying leaseholders can pursue a new lease (for a further 50 years) or can potentially purchase the freehold of the property. However, it should be noted that some leases are excluded from these rights. It is generally advised that you start thinking about extending your lease when it has between 85 and 90 years left. Properties with a lease of less than 80 years may lose value and when the lease falls below this threshold, it will cost more to extend it.

Tenants of flats can also invoke their leasehold enfranchisement rights. A lease extension for a flat or apartment must be granted for a term that is equal to the remaining length of the lease plus 90 years. In some cases, this may be subject to a premium payment.

Collective Leasehold Enfranchisement

The Leasehold Reform, Housing and Urban Developments Act also gives qualifying tenants of flats a collective right. This joint right is similar to those mentioned above – namely, collective tenants can also pursue a lease extension or the acquisition of the freehold. Qualification for collective leasehold enfranchisement can depend on a number of factors, including the type of premises, the number of qualifying tenants and the number of participants willing to participate in the claim. Certain types of property may not qualify for the right to collective enfranchisement.

The Landlord & Tenant Act 1987

Another piece of legislation that protects the rights of tenants is the Landlord & Tenant Act of 1987. This act effectively means that landlords cannot abandon their interest in a building that consists of two or more leasehold flats that are occupied by qualifying tenants, without first offering it to said tenants. This is known as the right of first refusal.

In addition to purpose-built apartment buildings, houses converted into flats can also benefit from the right the first of first refusal under both the Landlord & Tenant Act 1987 and under the Leasehold Reform Act 1967 which gives rights to enfranchise or lease extension. Furthermore, the Housing Act of 1985 gives qualifying tenants the right to buy the freehold or a longer leasehold interest in their home at a discounted rate.

So, there you have it. Everything you need to know about Leasehold Enfranchisement and how it affects your property.