Can I Buy The Freehold Of A Leasehold Property?
Since 1967, tenants of houses under long leases have had the right either to acquire the freehold or to extend the lease by 50 years.
What are the qualifying criteria?
The main ones are as follows:
- the property must be a house
- the house must be held under a long lease, i.e. one which was granted for a term of more than 21 years
- the house must have been owned by you for more than two years. This timescale begins from the date of registration at the Land Registry. If you have not owned the lease for the last two years, you may still quality if you have succeeded to the tenancy on the death of a family member and have been resident in the house.
It is no longer necessary for the person exercising the right to have lived in the property. There is no residency qualification, only one of ownership.
It is sometimes difficult to ascertain whether the building is a house as some large buildings may have a commercial element to them. The building must be self-contained and be divided vertically from any adjoining property. There is no right to enfranchise if a material part of other premises runs either under or over your house or if your house similarly juts over or under adjoining property.
What are some of the exceptions preventing you from qualifying?
The main ones are as follows:
- where the house is let under more than one tenancy, only the tenant with the lowest interest has a right to acquire the freehold
- where the tenant is a business tenant within the meaning of Part II of the Landlord and Tenant Act 1954 (although if the business tenancy is for more than 35 years and the tenant has been occupying the house, or part of it as his only or main residence for the last two years or two years out of ten then this will be qualifying)
- where the tenant has a specific type of shared ownership lease (please contact us for more information)
- where the tenancy is protected under the Agricultural Holdings Act 1986
- where your Landlord is the National Trust
- where your Landlord is a public body and has under Section 28 of the 1967 Act obtained a certificate of development.
How much will I have to pay?
The valuation formulae are complex but are primarily based on ground rents and yields and the length of the unexpired term. If your lease has less than 80 years left at the date you serve your claim, you may (unless your lease is one that falls under what is known as the “original” basis of valuation) also pay a “marriage value” which can considerably increase the price.
In addition, you will have to pay the landlord’s reasonable professional costs which will normally be solicitors’ and surveyor’s fees. These include those relating to considering and assessing your notice and generally dealing with the statutory process and the valuation aspect and also the conveyancing of the freehold. Finally, the landlord will ask you for a statutory deposit which is three times the annual rent payable when the notice of claim is issued. This could be substantial if the annual rent is anything other than a nominal “ground rent”.
You will also have your own professional costs which will be those of your solicitor and surveyors and possibly those of a barrister, particularly if the matter has to be referred to the First Tier Tribunal (FTT). The usual conveyancing charges such as stamp duty land tax (depending on the price you pay), Land Registry fees and other incidental disbursements such as search fees will also need to be budgeted for.
Will I need a formal valuation before bringing a claim?
We would always recommend this. You must have a good idea at the start of this process of what your costs will be and whether you can afford it. Unlike claims which can be brought for a lease extension or collective enfranchisement (link to other FAQs), the initial notice for a claim for a house creates a binding contract. If you fail to proceed, you can lose your deposit, although you do have the right to withdraw within one month from when the price is ascertained or agreed.
Can the landlord impose any restrictions on the freehold?
The Act specifies which rights and other covenants contained in your lease will still apply to the freehold once it has been acquired. This can be crucial as it may curtail your future plans to redevelop the property.
What if the freeholder disputes my entitlement to claim or we cannot agree on the price?
Where there is a dispute as to entitlement then the matter has to be referred to a county court. If the price or terms of the freehold transfer cannot be agreed, then the matter must be referred to the FTT for determination. This can be a lengthy and expensive process. As for costs in the county court, as a general rule the losing party is responsible for the winning party’s costs. For matters which are determined by the FTT, the parties will generally be responsible for their own costs.
What happens when everything is agreed/determined?
Once all the terms in dispute have been resolved either by agreement or by the FTT/county court then the transfer of the freehold can be executed and monies paid over. Pre-completion conveyancing searches at the Land Registry are carried out and, once completion takes place, the transfer will be sent to the Land Registry for registration. At this point any stamp duty land tax will be paid.
The Land Registry will then complete registration (normally within 55 business days) and, as part of that application, your existing lease will be cancelled.
This article was originally published by Penningtons.