These homeowners are unable to sell their properties, either because of expensive rising ground rents, or because the unexpired term on their leasehold interest is becoming too short, and therefore unmanageable.
But it doesn’t have to be this way.
Their difficulties can be resolved within around six months through a process called leasehold enfranchisement. Unfortunately, many of them have not heard of this and consequently do not understand how it can benefit them.
Statutory solution
In a nutshell, leasehold enfranchisement is a legal process whereby owners of leasehold flats and houses can compel their landlords to extend their leases or acquire their freeholds. A statutory solution through leasehold enfranchisement is at present the only way to guarantee an immediate lease extension and a peppercorn, i.e. zero ground rent.
For anyone with a residential leasehold property with an unexpired term approaching 80 years or less, it is important to extend the lease, as a longer lease may be more beneficial to sell or remortgage the property. The cost of extending a lease rises as the length of the lease gets shorter, particularly when it is below 80 years.
A formal statutory lease extension requires that the lease is extended by adding on a further 90 years and the ground rent is reduced to a peppercorn.
Part of the process involves the leaseholder instructing a lawyer specialising in leasehold enfranchisement to initiate a formal statutory notice to their landlord, and then negotiating the premium and terms of the new lease. Failure of the parties to agree on terms can result in a Property Tribunal determining the terms in dispute.
Financial outlay
While leasehold enfranchisement requires a financial outlay on the part of the leaseholder, it has the benefit of enabling them to take control of their situation for when they want to sell or perhaps refinance. Within a timeframe of around four to six months, which is the average time to complete, they could make their property more mortgageable and attractive to prospective purchasers.
The leaseholder is obliged to pay both their own legal and valuation costs and the reasonable costs of the landlord. The Tribunal can also be asked to determine the landlord’s reasonable costs.
Although leasehold enfranchisement is often seen as a more expensive process than a voluntary lease extension, it should be remembered that this procedure provides certainty, and there is a great deal of comfort in certainty when dealing with your own property. The voluntary approach on the other hand has no guaranteed peppercorn ground rent, and instead of a guaranteed 90-years added on, the leasehold term is negotiated with the landlord.
Crucially, under new legislation (awaiting an in-force date) with a voluntary lease extension, the existing ground rent provisions may apply to the remainder of the term of the lease prior to its term being extended. As a result, a new lease being extended informally by deed of variation to another 125 years would still require payment of contractual ground rent under the terms of the existing lease until the new extended term comes into effect.
