Darren Coleran

William Bethune

Sonal Ghelani

1. Do you know the difference between Freehold and Leasehold Property?

2. Did you know that a Leasehold Title is essentially a depreciating asset where the landlord is first in line to benefit. Can I protect my investment?

3. Can I own both the Freehold and the Leasehold.

4. My service charge is too much and the landlord doesn’t care – what can I do?

FREEHOLD PROPERTY:

Is the highest class of property ownership in England and Wales.

There are no payments of ground rent or service charge. Rent Charges may apply but these are generally quite rare and the payments relatively small.

You own the building and the land upon which it is built

LEASEHOLD PROPERTY.

Comprises of an estate in land subject to a predetermined period of ownership. Most flats are leasehold.

You essentially retain an estate interest for a prescribed period of ownership ranging from 99 – 999 years and usually pay ground rent and contribute toward the maintenance and insurance of the building – (Service Charge)

As the lease starts to decrease so too does the value of the property. Leases with less than 80 years left are difficult to sell and buyers are reluctant to consider these.

Owning leasehold property comes with many benefits for instance shared maintenance and insurance costs. That is not to say that there are not disadvantages.

The length of the lease will forever determine the value of your home and you need to carefully monitor this. As we have seen leases with less than 80 years can be difficult to market and to mortgage. This is because the landlord is entitled to “marriage value” when the lease is extended. Marriage Value is typically described as the increased value in marrying the leasehold and freehold estates. As your term decreases the landlords share in your property will increase.

A Lease extension – Statutory or Voluntary

An application for Collective Enfranchisement

Do nothing – You may simply decide to do nothing. You may have plans to sell the property in the future but be cautious. By doing nothing you seriously undermine the value of your estate and may give yourself a headache on sale.

Many lessees make the mistake of trying to negotiate a lease extension directly with their landlord. Whilst most landlords will have the discussion caution is advised. A small premium is likely to reflect an increase in the ground rent payable. This can also impact negatively on re-sale. A voluntary lease extension does not have the benefit of statutory protection and many landlords will abuse the naive lessee.

A Solicitor or Surveyor should be retained to negotiate on your behalf. If the landlord is unwilling to negotiate reasonable terms then there may be a fall back position.

The 1993 Leasehold Reform Housing and Urban Development Act provides a statutory framework in which to extend your lease. Under the legislation you will automatically become entitled to a lease extension of 90 years as well as the unexpired term. The ground rent will be reduced also to a peppercorn (nil).

To qualify under the 1993 Act you need to have owned the property for a period of 2 (two) years. Ownership is determined by the date of registration with the land registry.

The right to extend the lease can be assigned by a qualifying lessee. This means that you can purchase a flat and enjoy the benefits of the rights created by the Act without waiting 2 yrs.

The 1993 Act as well as providing a statutory framework to extend your lease also provides for the acquisition of the freehold reversion. The purchase of the freehold is often referred to as “Enfranchisement” and you may also see property being marketed with a “share in the freehold”.

To qualify for collective enfranchisement there must be at least two flats in the block with long leases. A long lease is typically defined as one granted in excess of 21 years. As long as at least 50% of the qualifying lessees agree a claim can be made to acquire the freehold. The benefits are significant and range from self determination of service charge issues to extending your lease.

Getting Started.

You will need to consult with a Solicitor who specialises in such matters to ensure that you qualify under the Act. Is the lease a long lease and have you owned the property for two years or more?

A surveyor is then appointed to consider the lease and to also undertake a valuation of the property. Specialist Surveyors are recommended.

Once the valuation has been undertaken your Solicitor will prepare the Notice for service on the landlord. A minimum period of two months is allowed for a response.

The landlord will usually ask to carry out their own valuation of the property during this two month period, evidence of your entitlement will also be requested together with a statutory deposit (generally 10% of the proposed premium of £250.00 whichever is the greater)

A counter notice is then usually issued by the landlord setting out their proposals for the lease extension. At this stage you

should expect the premium to exceed that set out in your notice.

The parties are then required to enter into a period of statutory negotiation lasting six months. During this time your surveyor will attempt to negotiate a reasonable premium with the landlords representatives.

If an agreement can be reached then a period of two months is allowed to complete with a further two months allowed to deal with any complications and issues where the Courts intervention might be needed.

Getting Started.

Since this is a collective right you and your fellow lessees/participants need to meet with a Solicitor to establish your entitlement under the Act. The criteria is strict and the make up of the property must not exceed 25% non-residential use.

Assuming that you qualify a “Participation Agreement” is prepared. This agreement sets out the basis upon which you all agree to participate in the process and deals with such issues as costs and the grant of new 999 year leases after completion.

A valuation for enfranchisement purposes is then prepared and again a specialist surveyor should be consulted. Your Solicitor can usually make a recommendation.

A notice of claim is then prepared and setting out the basis of your claim. This must be signed by all of the participants prior to service.

On service the landlord is given two months to respond, much like the section 42 process. It is not unusual for the landlord to request evidence of entitlement as well as their own valuation of the property.

A counter notice is then received and it is not unusual for the landlord to value the reversion higher than you.

The parties are then required to enter into a period of statutory negotiation, again lasting six months. Your surveyor and the landlord surveyors will attempt to negotiate a settlement.

If terms can be agreed the parties have two months in which to complete with a further period of two months reserved for Court applications and complications.

The Property Tribunal , formerly known as the LVT exists to determine issues of contention and relating to s.42 and s.13 claims.

In cases where the parties are not able to negotiate a settlement following the two months reserved for negotiations then an application can be made. In both cases (s.42 and s.13) you have four months to make the application. Failure to do so will result in the deemed withdrawal of your claim and you will not be entitled to make a fresh claim for 12 months.

Tribunal applications are similar to applications made to Court and involve lengthy processes and strict compliance with directions. The proceedings can be extremely expensive. The advice of your Solicitor and Surveyor at this stage is critical.

Vesting Orders. – In cases where the landlord fails to respond to your claim (s.42 and s.13) A claim can be made to the County Court for a Vesting order. The Court will essentially and in conjunction with the Property Tribunal determine the application and your entitlement. Similar applications are used where the landlord is absent.

Many firms specialising in leasehold reform will readily acknowledge that service charge disputes make up a significant part of their work.

The payment of service charge should be seen as a benefit and something that protects and adds value to your property. Often however this is not the case with excessive demands and poorly drafted demands making up the majority of complaints.

A Service Charge demand needs to meet a prescribed statutory format to have been legitimately raised. The 1987 Landlord and Tenant Act (S. 47-48) provides that the demand must contain:-

The name and address of the landlord.

An address for service of notices if not in the UK.

For demands raised after 1st October 2007 and where the service charge is payable in advance a summary of rights and obligations must be attached to the demand (30th November 2007 – Wales)

Where the service charge is payable in advance s.18 provides that the landlord can only recover the costs incurred within an 18 month period of raising the demand in the prescribed format.

If you have owned your property for two years or more you can ask your landlord for a lease extension. You are automatically entitled to 90 years plus the unexpired term. Ground rent is reduced to a peppercorn.

If there are two or more flats in the building with long leases you may be able to acquire the freehold. 50% of the qualifying tenants must agree to participate and no more than 25% of the building can be made up of commercial premises. The benefits range from self determination over maintenance and insurance to being able to extend your lease.

The Property Tribunal (formerly the Leasehold Valuation Tribunal) exists to determine issues of contention in relation to 1993 Act claims – (lease extension or enfranchisement). If you believe that the landlord is making an excessive demand then you can ask the tribunal to make an independent determination.

Service Charges disputes can be resolved by asking the tribunal to make a determination on the reasonableness of the charges raised. This can be an expensive and time consuming process and it might well be advisable to consider a “Right to Manage Claim”

Right to Manage claims, if successful allow you take over the management and maintenance of your block. Often these proceedings are considered where there is not a sufficient majority to enfranchise or where perhaps the finance is not readily available to fund such a claim.

You have the power – The legislation relating to landlord and tenant has improved significantly over the years and the recent case law suggests that the days of the bullying landlord may well be behind us. Tribunals now have much wider powers to award costs and landlords are now much more likely to embrace compromise and reasonable negotiation.

The Leasehold Reform team at Bolt Burdon specialise in all matters appertaining to lease extensions and enfranchisement. We regularly attend the Property Tribunal and County Court on behalf of our clients.

Bolt Burdon undertake all work on a fixed fee basis. Unlike many firms we do not charge by the hour and understand that cost is a sensitive issue.

As a firm we actively embrace technology and our lawyers are able to work remotely and at times to fit in with you. Weekend and late evening appointments can be arranged.

Providence House

1 Providence Place

Islington

N1 ONT

Tel :- 020 7288 4775

darrencoleran@boltburdon.co.uk

williambethune@boltburdon.co.uk

sonalghelani@boltburdon.co.uk