Leasehold extension vs enfranchisement

[somnambience]

Hello everybody.

I have tried to search for relevant posts before posting myself but still in need of advice.

In January I bought a flat in SW London for £369,000, with 87(at this time) years remaining on the lease and a ground rent of £20pounds per annum.

I am in the first floor flat and the ground floor flat is owned by the freeholder.

1) I understand that as the market falls, the cost of lease extension falls as does enfranchisement, based on the market value of the flat. Is this correct?

2) I have been told that mortgage companies have no problem certifying mortgages for purchasers as long as there is at least 75 years on the lease. Is this true?

3) Would it make economical sense to extend lease or enfranchise now as opposed to in years to come should i choose to sell the flat on?

4) As marriage value is not an issue at the moment (?) as i have 87 years on lease, will the cost of lease extension and enfranchisement be the same?

5) Does enfranchising automatically extend my lease for free?

6) If i enfranchise, there would be just the two of us sharing freehold, if i then want to grant myself a 999 year lease do i have to have permission of co-freeholder?

Ok think that is about it for the moment, hopefully someone can give me clear advise and i have included enough info.

I also apologise if this is all very obvious and i am being a halfwit.

[jeffrey]

1. Sorry- don't know for sure, but it sounds plausible.
2. Yes. Most will accept 70yrs. or longer.
3. Dependes on market conditions but, assuming unchanging property value, the cost of enfr./ext. will inexorably rise year by year.
4. Cost of flat1 + flat2 extr. approximately equals cost of joint enfr.
5. No, but - if the two flats' lessees jointly enfr. entirety, they will have paid - in effect - the ext. premium on each (see item 4). Once they have completed enfr., the next step would be to re-grant the leases for extended terms. No more price; only legal fees.
6. Yes. The two lessees would own the f/r jointly.

[somnambience]

Thanks for your swift response.


Where i am confused however is that the other flat is owned by the freeholder. Does he have to sell me share of freehold?

Enfranchising seems to be set up for buildings with more than 2 flats so i am confused as to this situation.

[jeffrey]

Thanks for your swift response.


Where i am confused however is that the other flat is owned by the freeholder. Does he have to sell me share of freehold?

Enfranchising seems to be set up for buildings with more than 2 flats so i am confused as to this situation.

Is he personally resident in the ground-floor flat?

[somnambience]

Yes he is, and made it clear to previous owners the only way he was ever leaving was in a coffin!

[Richard Webster]

If there are only 2 flats and one belongs to the freeholder I don't really see how you can force him to join in an application to buy his own freehold, which is what you would have to do. My reading of the law is that if there are only 2 flats both flat owners must apply for collective enfranchisement.

The other flat owner could agree to sell you a half share in the freehold, but would he want to do that and lose control? If you did manage to agree this you would still need a lease extension deed (surrender and re-grant) drawn up and signed by both of you.

So answers are:

1. Yes
2. Yes, but this might change in present financial climate.
3. Probably can't enfranchise - ideally claim extension at bottom of market, if you know when that is - but figures could be finely balanced because reduction in term could outweigh reduction in value.
4. You can't enfranchise so this isn't really relevant. There are arguments for saying that marriage value is relevant to an enfranchisement over 80 years because the statutory provision doesn't apply to enfranchisement only to lease extension - (Jeffrey tell me I'm wrong here, if I am) so the Landlord can still argue that even at 87 years there is a value to a lessee to be able to say that he has a "share in freehold".
5. No there is no law that says it happens automatically, but if you could enfranchise, then normally the others with a share in the freehold would be in the same position, so in practice would not charge, but there would still be legal costs say £500-£800 involved. If the leases were different lengths then those with longer leases might want to charge.
6. You can't do it, but if you did end up jointly owning the freehold, then the other freeholder would have to sign the documents as well as you.

[somnambience]

OK so seems my options are:

1) Ask him to sell share of freehold with an agreement to let me extend the lease again

2) Apply for a lease extension back up to 99years

3) Do nothing as long as i sell with 80+years on lease

What would your choices be?

Thanks

[jeffrey]

If there are only 2 flats and one belongs to the freeholder I don't really see how you can force him to join in an application to buy his own freehold, which is what you would have to do. My reading of the law is that if there are only 2 flats both flat owners must apply for collective enfranchisement.

The other flat owner could agree to sell you a half share in the freehold, but would he want to do that and lose control? If you did manage to agree this you would still need a lease extension deed (surrender and re-grant) drawn up and signed by both of you.

So answers are:

1. Yes
2. Yes, but this might change in present financial climate.
3. Probably can't enfranchise - ideally claim extension at bottom of market, if you know when that is - but figures could be finely balanced because reduction in term could outweigh reduction in value.
4. You can't enfranchise so this isn't really relevant. There are arguments for saying that marriage value is relevant to an enfranchisement over 80 years because the statutory provision doesn't apply to enfranchisement only to lease extension - (Jeffrey tell me I'm wrong here, if I am) so the Landlord can still argue that even at 87 years there is a value to a lessee to be able to say that he has a "share in freehold".
5. No there is no law that says it happens automatically, but if you could enfranchise, then normally the others with a share in the freehold would be in the same position, so in practice would not charge, but there would still be legal costs say £500-£800 involved. If the leases were different lengths then those with longer leases might want to charge.
6. You can't do it, but if you did end up jointly owning the freehold, then the other freeholder would have to sign the documents as well as you.

Here I am!

1. The no-MV-if->80yrs. rule does apply to flats' lease extensions as it does to houses (lease extensions/ enfranchisement) [paragraph 4(2A) of Schedule 13 to 1993 Act].

2. It does NOT apply to flats' enfranchisement, because lessees have to make an offer in the s.13 Notice.

3. However, see paragraph 4(2A) of Schedule 6 to 1993 Act: any increase in f/r value attributable to extension right on a flat with >80 yrs. unexpired is disregarded.

[andyz1]

Only 2 flats

I have a flat in a 4-flat conversion. The freeholder lives in and owns one flat. He owns the other. Quite simply, because not more than 50% of the flats wish to enfranchise and freeholder is resident we can only apply for the lease extension statutarily. We cannot force him to sell the freehold.

If the freeholder has already told you he won't sell the freehold then it seems like informal negotiations are ended. That would have been your only route to freehold acquisition. A Section 13 notice would be invalid I believe due him being resident.

You can however extend the lease via a Section 42 notice and it would be wise to do so soon. Especially before the unexpired term reaches 80 years.

The valuation process is virtually identical to that for freehold acquisition. And the increase in value with a long lease compared to share of freehold in a 2-flat conversion probably won't be hugely different.

If, on the other hand, your motivation for wishing to acquire share of freehold is problems with the freeholder, do your best to pass the problem on as soon as possible (without concealling any issues to a purchasor, of course). Easier said than done of course in this property market right now.

The question about when to extend the lease in a falling property market is easier than you think. Rough calculations suggest that waiting has a neutral effect at around a 10% per annum fall. And you need to check whether your property is affected as much as the national average. Prices for good size flats in London have held up well. New studios in provincial city centres of course have not.

So you need to pick a time when you think the market is about to stabilise. Or do it now when the owner is likely to be more motivated to get some money when they may be struggling for funds elsewhere. Now or soon seems like a good bet. And make sure you get good advice from an ALEP-approved solicitor and valuer before making a final decision.

[jeffrey]

I have a flat in a 4-flat conversion. The freeholder lives in and owns one flat. He owns the other. Quite simply, because not more than 50% of the flats wish to enfranchise and freeholder is resident we can only apply for the lease extension statutarily. We cannot force him to sell the freehold.

If the freeholder has already told you he won't sell the freehold then it seems like informal negotiations are ended. That would have been your only route to freehold acquisition. A Section 13 notice would be invalid I believe due him being resident.

You can however extend the lease via a Section 42 notice and it would be wise to do so soon. Especially before the unexpired term reaches 80 years.

The valuation process is virtually identical to that for freehold acquisition. And the increase in value with a long lease compared to share of freehold in a 2-flat conversion probably won't be hugely different.

If, on the other hand, your motivation for wishing to acquire share of freehold is problems with the freeholder, do your best to pass the problem on as soon as possible (without concealling any issues to a purchasor, of course). Easier said than done of course in this property market right now.

The question about when to extend the lease in a falling property market is easier than you think. Rough calculations suggest that waiting has a neutral effect at around a 10% per annum fall. And you need to check whether your property is affected as much as the national average. Prices for good size flats in London have held up well. New studios in provincial city centres of course have not.

So you need to pick a time when you think the market is about to stabilise. Or do it now when the owner is likely to be more motivated to get some money when they may be struggling for funds elsewhere. Now or soon seems like a good bet. And make sure you get good advice from an ALEP-approved solicitor and valuer before making a final decision.

andy: please start new thread for this post.