ENFRANCHISEMENT
Instead of extending the lease, residents in a building have the option to collectively acquire the freehold, which is known as collective enfranchisement. This process usually requires the participation of more than 50% of the leaseholders.
As uncommon as it may be, some leaseholders might informally approach the freeholder without serving any notice. However, this approach not advisable due to the increased complexity involved with collective enfranchisement compared to a lease extension. To begin the process leaseholders need to hire a surveyor who will assess and ascertain the value of the freehold before serving a notice. The valuation is similar to what would be done for a lease extension.
After serving notice a surveyor appointed by the freeholder will inspect the property. Information for preparing a counter notice is then gathered. Both parties then have 6 months to agree on a premium for acquiring the freehold. If no agreement is reached within this timeframe an application can be made to settle it at the First Tier Tribunal 2 months after receiving the counter notice.
Given that there’s a possibility for such cases to reach a Valuation Tribunal it is advisable to appoint professionals like surveyors and solicitors. A skilled surveyor will carefully consider factors such as lower premium ranges in determining the valuation. Their expertise in case law precedents and negotiation strategies are essential for achieving good results. The parties should maintain good co-ordination throughout and that applies to clients, surveyors and legal representatives.
Our panel of surveyors, which includes RICS Registered Valuers, deal with a number of cases every year. They are actively involved in managing negotiations and representing clients as expert witnesses in Tribunals. We can also connect you with solicitors who can work together with you and your collective enfranchisement surveyor.
Frequently asked questions
What are the differences between a leasehold and freehold property?
When you own a property freehold it means you have ownership of both the property and the land it stands on. Whereas, leasehold ownership only grants you rights to the property for a limited period and does not include ownership of the land on which it is built. Certain areas in London in particular have a prevalence of this type of tenure.
Leaseholders are provided with the option to extend their lease or obtain ownership under The Leasehold Reform Act of 1967, although property owners tend to be more familiar with the Leasehold Reform, Housing and Urban Development Act of 1993 (the 1993 Act).
What does "marriage value" mean?
The additional cost for extending a lease includes compensation for the loss of ground rental income and giving up the right to take back possession when the lease ends. "Marriage value" refers to the combined value of both the freeholder and leaseholder interests. It is calculated at a rate of 50% with higher impact on shorter leases. It is recommended that tenants act promptly especially as marriage value is not considered when there are over 80 years remaining on the lease.
What does "modern ground rent" mean?
According to the 1967 Act, leaseholders have the right to extend their lease by another 50 years for houses or they can obtain ownership of the property (freehold).
In cases where only an extension is sought no additional fee can be charged by the freeholder. A freeholder can however impose a " ground rent," which typically exceeds the current rent and becomes effective after expiration of the original lease.
The process of acquiring ownership follows eligibility criteria based on tenancy terms. One important aspect of these criteria involves determining whether there is a right to extend and how valuation for acquiring ownership is conducted. If a property qualifies under Section 9(1) of the Act, then its valuation is based on Original Valuation Basis (OVB), which reflects the understanding that the freeholder owned the land and the leaseholder effectively owned the house.
The freeholder would take back vacant land once the lease ends and rent it out at a "fair market rent."
The second method of valuation according to Section 9(1A) recognises that the owner will have a house, rather than just an empty plot of land. This method is similar to buying the freehold under the 1993 Act. If the lease has less than 80 years remaining it might have to factor additional costs known as “marriage value”. The decision regarding which method to use is not in the hands of the leaseholder and often leads to an expensive premium.
If you are considering purchasing a leasehold please contact us so that we can arrange for advice from a surveyor regarding either extending your lease or buying the freehold.
What is development value?
Enfranchisement introduces a unique element known as “development value” and this pertains to potential developments with freeholder consent, such as the creation of new dwellings, roof extensions, basement alterations, etc.
What is hope value?
It is derived from development value. The surveyor must assess likely compensation for this aspect, considering factors like planning permission.