Is it time to buy your freehold?
Extending your lease can be a long and complicated process. However, doing so promptly, with the help of a specialist solicitor, can save you thousands of pounds in extra costs and add value to your property. If you are in a position to do so, however, the best course of action might be to buy the freehold.
Why buy the freehold?
It can be expensive to extend a lease without owning the freehold. If you buy the freehold, however, you can usually extend your property’s lease on any terms you wish without paying a penny. Additionally, you’ll save on the ground rent and service charges for which leaseholders are legally liable.
Once you’ve bought the freehold you are also in control of the management of the building. This might lead to further savings, for example on costs relating to insurance commissions or contracts. If you have bought the freehold collectively with other leaseholders, you will all share in the responsibility of owning and managing the building.
The Leasehold Reform Housing and Urban Development Act 1993 gave tenants the right to purchase their building’s freehold. Usually, this will take the form of a group of tenants (i.e. in a block of flats) coming together to purchase it collectively, otherwise known as collective enfranchisement. However, certain criteria must be met to pursue this option:
- The building must have at least two flats
- At least half of the leaseholders must take part
- At least two thirds of the properties must be leasehold
- At least 75% of the properties must be residential
- All participating tenants must have a ‘long’ lease (i.e. over 21 years)
- For blocks of flats in which the freeholder lives as a residential landlord, you may not have the right to buy the freehold.
Two routes to take
There are two main routes you can take when buying the freehold – formal and informal. Before you start, however, make sure at least 50% of the tenants in your block are interested – otherwise you might be wasting your time. To ensure all participants remain committed, it is advisable to enter into a legally binding participation agreement.
You’ll also need to instruct an expert solicitor at this stage, as the law surrounding enfranchisement is complex and freeholders can exploit mistakes made by the uninitiated.
The informal route
As the name suggests, the informal route involves a more casual approach. The leaseholders can enquire whether the current freeholder is interested in selling the freehold and, if they are, your solicitor can open negotiations. However, the freeholder is not obliged to respond to an informal request so may simply turn the offer down.
The formal route
The more formal approach requires the landlord and tenants to follow a strict procedure and timescales set out in law. Please note that leaseholders are responsible for their freeholder’s legal costs.
- Before notifying your landlord of your intention to purchase the freehold, you will need a surveyor to value the participating properties and determine a realistic premium
- Determine a ‘nominee purchaser’ to buy the freehold – this can be one of the tenants but is most often a limited company set up by the tenants for this purpose
- Initiate negotiations by serving a ‘tenant’s notice of claim’ on your landlord
- They will serve a counter notice and negotiations will begin
- Once the parties agree, the purchase of the freehold can be completed.
The main advantage to this route is the added protection for the leaseholders if the parties fail to agree the terms or price. If this happens, the leaseholders will be able to apply to the First-tier Tribunal to settle their dispute.
Reform is on the way
In January 2021, the government announced imminent reforms to the leasehold system that are set to make lease extension and freehold purchase easier and cheaper for tenants. To find out more, please click here to see our recently published article.
Whether you are interested in buying the freehold of your property or extending your lease, you should always seek expert advice and assistance to help you understand the legal processes involved.
Our solicitors have longstanding experience and extensive knowledge of local landlords and management companies. To get in touch, please call 0203 871 0039 or email firstname.lastname@example.org.