If you own a house and it’s a leasehold rather than a freehold house, you may be entitled to purchase the freehold. This can have some real advantages, including increasing the value of your home. We take a look at whether you can buy the freehold of your house, why you might want to and how it is done.
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What kind of solicitor do I need to buy the freehold of my house?
Buying the freehold of a leasehold house can be a complex process, and it’s really important to work with an experienced expert. And very few property lawyers have much experience of this kind of work. It’s a niche area.
Here at Bonallack and Bishop, our solicitors specialize in lease extension and the freehold purchase of both apartment blocks and leasehold houses throughout England and Wales.
As long-standing members of ALEP (the Association of Leasehold Enfranchisement Practitioners), and the only law firm recommended by HomeOwners Alliance for freehold purchase work, we have all the expertise you need.
Our five-strong leasehold team (who handle nothing lease extension, freehold purchase and right to manage cases) has extensive experience with both older leasehold houses and newer constructions from big national developers like Persimmon, Redrow, and Taylor Wimpey Homes. When you work with us, you can trust in our specialist knowledge and experience.
What is a leasehold house?
If your house is leasehold, then someone else, known as the freeholder or landlord, will own the land on which the property stands, and is the ultimate owner of the house itself. You have merely bought the right to occupy that house for a set period of time – the lease term.
And your lease is likely to include restrictions (sometimes significant restrictions) on what you can do. For example, you might be banned from extending your property or from subletting it. You may need to get the freeholder’s agreement for works to your home and they may be entitled to charge for providing this consent.
You will also usually have to pay ground rent to the freeholder. In some circumstances, the ground rent increase, sometimes significantly, over the years. If those ground rent increases are substantial, it may make your house hard to sell.
And once the term remaining on the lease drops below around 80 years, it can affect how easily you can sell your property. Mortgage lenders can be reluctant to lend against properties with much less than 80 years remaining. It can be expensive to extend the lease.
It has become popular in recent years for builders to sell leasehold houses, keeping the freehold themselves and then selling this on to a third party. The third party will then become the new freeholder and be responsible for collecting the ground rent and enforcing the covenants in the lease.
Problems have occurred with homes where the ground rent is high, especially where the lease includes a clause saying that the amount to be paid will double every ten years. This was particularly common in leases granted in the 1970s, when inflation was high. The government has proposed new laws to address this and, in the meantime, a number of house builders have stopped making unfair ground rent increases.
Can I buy the freehold of my house?
In short, the answer is yes, in most circumstances.
Buying the freehold is known as leasehold enfranchisement. And there are 2 routes to buy your freehold in this way – the formal, or statutory route, and the voluntary or informal route.
The informal basis involves you reaching an agreement with the freeholder over the purchase of the freehold. Sometimes this works well – if your freeholder is reasonable and cooperative. But the critical thing is you have absolutely nowhere of controlling the price or the process. It’s entirely up to your freeholder – and they can change their mind, add new conditions increase the price at any stage, and there’s nothing you can do about it.
The result, it’s often better to use the formal rather than the informal approach. This is subject to eligibility, and does involve a rigid timetable, but if you are eligible for a formal freehold purchase, then it your legal rights and your freeholder cannot stand in your way. Buying your freehold in this way avoids the risk of your freeholder pulling out partway through or trying to increase the price at the last minute.
Am I eligible for statutory enfranchisement?
To be eligible to buy the freehold of your house as a legal right, which your freeholder cannot refuse, you and your property must meet the following criteria:
· The building is a house
· The original term of the lease was for 21 years or more
· You have owned the leasehold property for a minimum of two years
Is my building a house?
This might sound a daft question – surely a house is a house? But when it comes to house enfranchisement, that is not always the case.
To qualify for freehold purchase, your property should be reasonably thought of as a house and capable of being divided vertically from any adjacent house. This means that usually there should not be an overhang onto property owned by someone else. If it does overhang in this way, you may find that for the purposes of enfranchisement, it’s a flat and not a house.
It may also be possible to buy the freehold of a property which is partly commercial, such as a commercial unit with a flat above, if you have lived there for two years out of the previous ten.
Does this right to buy the freehold apply to all houses?
No – hostels and houses rented to charitable housing trusts our amongst those excluded.
Have you owned the house for two years or more?
It may be possible to purchase the freehold if the previous owners had started the formal or statutory enfranchisement process, even if you have not owned the property for two years yourself. If they have owned the property for two years or more and put in the formal application to buy the freehold (there’s no cost at this stage) and then transfer or assign the benefit of that enfranchisement application to you on completion of your purchase, you step into their shoes. So you can carry on with the existing application to extend the freehold without having to wait 2 years.
It is also possible for the executors of the estate of someone who has died to exercise the right of enfranchisement.
What is the advantage to owning the freehold of my house?
There are a number of very real advantages of owning your freehold. These include:
1. No need to renew a lease
While you have the right to renew a lease, the process can be lengthy and expensive. If you own the freehold, you will no longer have to worry about your property devaluing over time.
2. Eliminate ground rent
Ground rent that increases over time can also be a problem. Leasehold houses with ground rent that doubles periodically are particularly problematic and buyers may well be put off from purchasing a house with this set-up. If you buy the freehold, no more ground rent will ever be payable.
3. No more restrictions on what you can do
The lease is likely to contain restrictive covenants. There may be clauses prohibiting you from doing certain things. For example, there may be restrictions on making alterations to the property, subletting or having pets. You may need to seek the landlord’s agreement for some actions, such as adding an extension or having new windows. And it’s not unusual for your freeholder to be entitled to charge you for providing that consent.
The lease might also allow them to charge for providing information and dealing with notices when a property is sold. By purchasing the freehold, you won’t be subject to any of these kind of charges
4. Mortgage lenders prefer freehold houses
It is generally easier to obtain a mortgage for a freehold house than a leasehold house. In fact, some lenders have refused to lend against properties where the lease states that the ground rent will double every 15 years or less.
5. You take control of the management and maintenance of your own house
Not only do you take control of repairs and upkeep, but you don’t have to pay an inflated service charge to your freeholder – just what it actually cost you to keep your house in good condition
6. No risk of eviction if you breach the terms of your lease
There is even a risk that if you were to breach the terms of the lease, the freeholder could seek to evict you from your own home. While you only own the leasehold, you will never have complete ownership of your property and the land on which it stands.
7. it removes the worry of having no effective rights to remain in the property or ownership of the property when the lease runs out
When that lease runs out without having been extendedor without you having bought the freehold, the simple truth is that you now longer own the property – and are at risk of being evicted by the freeholder who now owns your house.
How do I buy the freehold of my house?
Whether you use the formal or informal route to purchase your freehold, you are going to need to instruct a solicitor to act for you – and we strongly recommend you to someone with plenty of experience of buying the freehold of houses. It’s a niche area of work. Not many solicitors deal with lease extensions, fewer with freehold purchase and even fewer regularly with the freehold purchase of leasehold houses.
If you instruct the specialist leasehold team here at Bonallack & Bishop, you can rest assured that the process will be dealt with effectively with plenty of experience and that your freehold is properly secured and registered into your name.
The informal route involves you reaching an agreement with the freeholder over the price to be paid. The formal route has a set process to be followed. It is crucial that each step is carried out correctly and within the rigid timetable.
Making a mistake in any of the legal documents, failing to get those documents served on time or served on the wrong person will mean your application fails. And a failed application stops you making a fresh application for a further 12 months and could render you liable to pay the wasted legal and valuation costs of your freeholder, in addition to your own wasted solicitor and surveyor costs.
How much will it cost to buy my freehold?
You will need to pay the freeholder a premium for the freehold. Calculating the amount to be offered can be complex.
You will need to use an experienced leasehold valuer who should give a figure based on the open market value of the freeholder’s interest. The valuer will not simply be a surveyor, they will need to be someone with particular expertise in valuing freehold interests in property.
- The valuation of the freehold will take into account the following:
- The current market value of the property
- The amount of ground rent payable each year
- The years remaining on the lease
The calculation of the amount to be paid may also involve ‘marriage value’. This is a figure based on the increase in the market value of a property if a lease is extended. If the freehold is being purchased, half of the marriage value can be added to the premium. Marriage value only comes into play marriage value only comes into play when the lease drops below 80 years. That’s why it, if at all possible, it’s really important to get your lease extension started before that crucial 80 year period – because having to pay marriage value is likely to mean you will have to unnecessarily pay thousands of pounds extra to buy your freehold.
You will also need to pay your valuer’s fee as well as the freeholder’s reasonable legal costs in dealing with the transaction.
Serving notice on your freeholder
The next step is for your solicitor to serve an initial notice known as a section 13 enfranchisement notice on the freeholder, setting out your wish to buy the freehold. This needs to be carefully drafted, because any mistake is likely to mean the notice is invalid, your application fails and you cannot make a further application to buy your freehold using the statutory route for a further 12 months. It’s crucial that it includes all of the necessary information. Your freeholder then has a deadline to respond within 2 months.
Receiving the counter notice
The freeholder should respond within two months with either a counter notice, putting forward an alternative price, or a notice accepting the price contained in your application.
Agreeing on the price to be paid
The price to be paid will need to be agreed. This generally involves negotiations between your solicitor and the freeholder’s solocitor.
If a price cannot be agreed upon, the First-tier Tribunal (Property Chamber) can be asked to decide. This is a specialist court that deals with leasehold and valuation disputes. Fortunately relatively few house enfranchisements and up at the First-Tier Property Tribunal – that’s because everyone will usually have to pay their own legal and valuers costs for attendance at the tribunal – and that can get expensive.
Finalising the freehold purchase of your house
Once you’ve agreed a price, a date for completion can be set. If a deposit has been paid in advance, then the balance of the purchase price will be paid on completion. We will arrange for the leasehold interest to be ended and the freehold registered into your name at HM Land Registry.
How long does it take to buy my freehold?
The time taken can vary, depending on the speed at which your freeholder responds and how easy it is to agree on the price. As a rough guide, we generally complete freehold purchases within 6 to 12 months from the date of the initial notice. In theory an informal enfranchisement without cooperative freeholder could be completed quicker than that.
Surely there aren’t many leasehold houses in England?
It may come as a surprise, but a significant number of houses in the UK are actually leasehold rather than freehold. According to a recent Leasehold and Commonhold Reform Report by the UK government, there are approximately 4.86 million leasehold homes in England alone, with 31% of those being houses. While the proportion of new-build houses sold as leasehold has been declining in recent years (dropping from a high of 15% in 2016 to just 1% in March 2022), there are still a large number of leasehold houses in existence.
For those looking to truly own their own home, buying the freehold of your house and gaining full ownership may be a wise investment.
The need for a specialist solicitor and specialist enfranchisement valuer
The formal house enfranchisement process is complex and it is important to make sure the documents are correctly drafted. It is also crucial to meet the deadlines which exist. If these are missed, you may need to start the transaction again from the start.
You are strongly advised to use a solicitor with genuine experience in this area of law. Most conveyancers and property solicitors are unfamiliar with enfranchisement and this could leave you in difficulty if the process is not handled correctly.