If you are a leasehold flat or house owner, or the owner of a freehold house or building that contains flats, you will probably already know that the legal aspects of owning property can be complicated. And that’s why you need specialist freehold solicitors.
As well as having restrictions on how they can use their own building, leaseholders also have many rights, including the right to extend their lease or buy their freehold. But when dealing with these kind of freehold and leasehold issues, you need to be certain that your solicitors really understand this area – and few conveyancing solicitors, in particular, handle these issues as often as you might expect.
But here, at Bonallack & Bishop we have one of the country’s largest specialist freehold and leasehold teams – a 5 strong team dealing with nothing but lease extension, enfranchisement and right to manage applications, as well as a highly specialist leasehold and freehold dispute expert. And over the last 25 years, our freehold solicitors have helped around 10,000 people extend their leases, buy their freehold or take over control of their block.
Need help with a leasehold or freehold issue? Call our specialist Freehold Solicitors on FREEPHONE 0800 1404544 for FREE initial phone advice – with no strings attached.
What kind of issues do our freehold solicitors deal with?
Overall, we handle a full range of leasehold and freehold property issues including:
1. Lease extensions
2. Leasehold enfranchisement i.e. purchasing your freehold
3. Right to manage claims
5. Freeholder/leaseholder disputes, including:
o Service charge disputes
o Ground rent arrears
o Lease forfeiture and possession
o Nuisance actions
o Maintenance disputes
o Major works and objecting to a Section 20 notice
o Management company and shared freehold disputes
o Disputes over enforcing restrictive covenants
6. Absent freeholders
7. Lease variation
8. Licence to alter/License for work
And our 22 strong conveyancing team handle the sale and purchase of freehold and leasehold residential houses and flats as well as commercial property for clients nationwide.
What is different about leasehold property?
Where a property is divided into flats or is a purpose built block, it is usually the case that each flat owner will lease their home from the landlord or freeholder. The landlord owns the land and the building. The original lease will often be granted initially for a period of between 99 and 999 years.
The freeholder is responsible for arranging buildings insurance and for maintaining the structure and outside of the building as well as any common parts. The leaseholder will generally be charged a fee by the freeholder (known as the service charge) which is usually payable either quarterly, twice yearly or annually – whatever is stated in the lease.
The lease will set out in detail what the landlord can charge for. This can include:
· Buildings insurance
· Maintenance of the building and common parts – this includes everything from cleaning shared areas to major structural repairs
· Decorating the common parts
· Gardening for shared grounds
· Gas, water and electricity bills for the common parts
· A payment into a sinking fund – this is a pot of money built up over time to cover large items of future expenditure, for example, if a new roof is needed
The leaseholder will often also have to pay the landlord ground rent. This is usually an annual payment – again is set out in the lease.
Quite often, block management and maintenance is dealt with by a third-party management company chosen on by the freeholder or the RTM company if enough in the block have exercised their right to manage. It is usually either the freeholder or block management company who will be ultimately responsible for collecting service charge payments and insuring and maintaining the building.
Dealing with the sale and purchase of leasehold property
The process of buying and selling property is more complicated when dealing with leaseholds. The buyer and their solicitor will need to see a range of information relating to the lease, including management company accounts and a copy of the buildings insurance policy.
It is also usually necessary to serve notice on the landlord when a flat changes ownership. This is dealt with by the buyer’s solicitor following completion.
There is additional complication if the flat is in a block where the right to manage or freehold purchase had previously taken place. Where a flat owner is a member of the management company for the freehold company, and where the membership of either of those 2 companies automatically follows ownership, then the buyer’s solicitor will also arrange for membership to be transferred to the new owner.
Leaseholders or flat owners generally have a range of legal rights. These include:
· The right to extend their lease, if they wish to – by an additional 90 years at zero ground rent – lease extension
· The right to purchase the freehold together with some or all of the other flat owners- freehold purchase
· The right to manage the running of the flats together with some or all of the other flat owners – known as the right to manage
· The right of first refusal (i.e. being given choice 1st to purchase the freehold) if the freeholder decides to sell up
Exercising these rights can be complex. Regardless of whether your freeholder or a leaseholder, it’s important that you have specialist freehold solicitors who really understand these areas to look after your interests.
Lease extension – your legal right
If you own what is known as a long lease (i.e. a residential lease originally granted for at least 21 years), you will almost certainly have the legal right to extend your lease. It’s really important to make sure that you do this before remaining lease term drops below 80 years. This is because the moment the term drops below 80 years, the freeholder is entitled to charge more to extend your lease – using what is known as “marriage value”.
And the lower your lease term gets, the harder it will be to sell it or for potential purchasers to find a mortgage to buy it. Once a lease drops below around 70 years, mortgage loans become significantly harder to find – and much, much more difficult to source once the term drops below 60 years. And difficulty in getting a mortgage means that your flat will become harder to sell and almost certainly worth less – sometimes considerably less.
Lease extension – is the formal or informal route right for me?
When it comes to extending a lease you have a choice. You can try to negotiate an informal lease extension with your freeholder or deal with the matter formally by enforcing your legal rights in applying for what is known as a formal statutory lease extension.
These formal lease extensions are often a better choice for the following reasons:
· With a statutory or formal extension, the lease remains substantially the same – so the landlord cannot impose new requirements or restrictions
· You have a legal right to add 90 years to your lease with the formal route, while the landlord may only offer less than this informally
· Ground rent will be reduced to zero with the formal route
· The landlord can’t refuse to extend your lease, change the terms or pull out part way through – all of which is perfectly possible with an informal agreement
In both cases, you will need to pay the landlord a premium for the lease extension. And with the statutory lease extension, in addition to your own legal and valuation costs, you are also expected to pay the reasonable legal and valuation costs of your freeholder. Although, even if you choose an informal lease extension you will probably have to pay those costs as well.
To be eligible for a formal lease extension you need to have owned the property for two years. There is however no need for you ever to have lived there – so property investors and buy to let landlords have the same lease extension rights as owner occupiers.
The formal lease extension route has a number of stages, as follows:
- Advising the landlord that you wish to formally extend your lease
You need to serve a formal section 42 lease extension notice on your freeholder to start the formal process of formally extending your lease.
- Valuing your lease extension
You will need a formal valuation of the premium you will need to pay to your freeholder to extend your lease. This is a highly specialist area and you’re going to need a surveyor with plenty of lease extension experience. There are comparatively few of these – but we have set up an informal panel of surveyors nationwide who specialise in this area – and we are happy to introduce you to 1 of them as part of our one-stop shop service.
The premium you’re going to need to pay is calculated by looking at a number of issues including:
· The current market value of the leasehold property
· The start date of the lease
· The original length of the lease
· The annual ground rent
The valuer may give you a range rather than a single figure. The premium can increase substantially once a lease falls below 80 years on account of marriage value, as explained previously.
You will also need funds to pay your own solicitors’ and surveyors’ costs as well as your freeholder’s reasonable legal and valuation costs.
- Making a formal offer to the landlord
A formal offer is then made to your freehold in what is known as a section 42 notice.
The notice should include all relevant details, including the premium you’re offering to pay. The notice should also give freeholder a deadline by which to respond.
It’s important that your solicitor correctly drafts and serves this notice. Any mistake at this stage could lead to an automatic withdrawal of your application – which means wasted legal and surveyor costs and in addition, it will prevent you from making another formal lease extension application for a minimum of 12 months
- Your freeholder’s response
Your freeholder can request further information from you and likely to also ask for access for their own specialist surveyor to value the property. They may serve a counter-notice and they can ask for a deposit. They can agree to your terms or propose different terms, such as a higher premium.
It may be open to them in some circumstances to refuse your request – it turns out you’re not legally entitled to a lease extension or have made an error in drafting or serving the section 42 notice.
- Agreeing on the premium to be paid
Your solicitor can negotiate with the landlord’s solicitor to try and agree on the premium to be paid. On the rare occasion that both parties can’t reach a compromise figure, the matter can be referred to the First-Tier Property Tribunal. Fortunately this is not common – not least because both parties should expect to pay their own legal and surveying costs for attending the Tribunal , which can prove expensive
Once an agreement has been reached, your solicitor will draft the new lease. When this has been approved, completion can take place. Your solicitor will arrange for registration of the new lease at HM Land Registry.
Click here to read more about how our Lease Extension Solicitors can help you
Collective enfranchisement – purchasing your freehold
As well as the right to extend your lease, you are likely to also have the right to purchase the freehold of the property together with some or all of your fellow flat owners. This is known as collective, freehold or leasehold enfranchisement.
Enfranchisement – the pros and cons
There are several potential advantages in owning the freehold, including:
· You can grant yourselves lease extensions for no premium
· You can reduce your ground rent to zero
· You can decide how much the service charge will be and how much to put into a sinking fund
· You can shop around and find the best deals for buildings insurance and maintenance jobs
· You can make sure that repairs and works are carried out as soon as they are needed
· You can change particular terms in your lease, for example, to allow pets or subletting
· It can be an advantage when you come to sell, particularly if you have granted yourself a very long lease
NB. Please note that your ability to exercise the rights above will depend on having the support of the other leaseholders who participated in buying the freehold. So for example, if one or more don’t want to amend existing leases to allow pets in the block, that will not be possible.
Flat management does have its drawbacks however and as a group you will need to be prepared to put in the work to deal with the administration. This includes:
· Collecting service charges and chasing any arrears (not always a pleasant experience, particularly in smaller blocks where you are having to chase your neighbours)
· Arranging buildings insurance and having work carried out to the property as necessary
· Holding meetings to agree on issues such as what maintenance is needed
· Preparing annual accounts
· Taking action to enforce the terms of a lease if these are breached by a flat owner
You can employ a management agent to do this for you, but this can be expensive.
Eligibility for collective enfranchisement
To qualify to purchase the freehold:
· The original lease must have been granted for a minimum of 21 years
· The building must have two or more flats with at least two-thirds of the flats owned by qualifying leaseholders
· At least half of the qualifying leaseholders must want to buy the freehold
The collective enfranchisement process
It very important to make sure that you instruct an experienced leasehold enfranchisement solicitor to act on your behalf as the process is relatively complex. Few solicitors come across enfranchisement regularly.
With statutory lease extensions, will be liable for your freeholders’ reasonable legal and valuation costs.
- The enfranchisement participation agreement
Unless your block is a very small one, and it’s usually a good idea to have a participation agreement drawn up and signed by the leaseholders who will be purchasing the freehold. This sets out the responsibilities of everyone involved, including the share that they will contribute towards the purchase price, and legally commits them to staying the course with buying the freehold.
Click here to read more about the enfranchisement participation agreement
- Initial Notice
A nominee purchaser will serve an initial notice on the freeholder. The nominee could be one of the flat owners or, more commonly, a management company is formed and this will be the nominee. The notice must include all of the relevant details, such as the deadline for a counter notice and the proposed premium.
Click here to read more about the collective enfranchisement notice
- Counter notice
The freeholder has 21 days in which to ask for information and must also serve their counter notice by the deadline in the notice.
- Agreeing on the price to be paid to the freeholder
You are going to need an experienced enfranchisement surveyor to provide a valuation of the freehold. Your freeholder may well propose a higher premium in their response and your solicitor can negotiate on your behalf to try and agree on a price.
As with lease extensions, if you and your freeholder cannot agree on a premium, you can further matter to the First-tier Tribunal (Property Chamber) to decide.
Once the price has been established, arrangements can be made for the transaction to be completed. Your solicitor will register the freehold into the name of the new owner(s) at HM Land Registry.
Right to manage -RTM
As a leaseholder, you and the other flat owners have the right to take over the management of your flats. Provided you meet the relevant criteria, your freeholder cannot object to this and you do not need their consent. The leaseholders will be liable for the freeholder’s reasonable legal costs.
Eligibility for right to manage
The block must be self-contained and no more than one-quarter of it can be commercial. Two-thirds of the flat owners must be leaseholders whose original lease was for more than 21 years. This should be at least two flats. At least half of the flats in the block must wish to participate in the right to manage scheme.
In very limited circumstances, some blocks of flats might not qualify for the leaseholders’ right to manage. This includes where the landlord or his family lives there, the block is not purpose-built and the block contains fewer than four flats.
The right to manage process
The first stage is to set up a right to manage company. You can do this on your behalf to ensure that your RTM company is properly formed and registered at Companies House – or your solicitor or accountant can set up the company for you.
All of the qualifying leaseholders must be formally invited to participate in the right to manage application. After this, notice is served on all freeholders as well as to any other parties to the leases and on any existing managing agent. Each leaseholder should also be given a copy of the notice.
As with lease extension and enfranchisement, it’s critical that the notice is drafted correctly serve correctly and the relevant timetable adhered to. Making a mistake with any of these could lead to the rejection of your claim.
The freeholder can request information from the management company. They may serve a counter-claim to the RTM application if they have a valid objection.
If no objection is received, then the management company will take over managing the property from the date specified in the notice.
Click here to read more about our our freehold solicitors can help you with the Right To Manage
Right of first refusal – RFR
If freeholder wants to sell the freehold, then the qualifying leaseholders (with leases of more than 21 years) will usually have the right of first refusal.
It is a criminal offence for the landlord to sell the freehold without giving the leaseholders the right of first refusal. The leaseholders would have the right to purchase the freehold from the new owner at the price that they paid.
To qualify for RFR, the building must contain at least two flats. Half of the flats in the building must be owned by qualifying leaseholders. No more than half of the premises can be non-residential.
The freeholder start the process by serving an offer notice on the leaseholders. This will include the price that they want. The leaseholders should have at least two months to make a decision.
More than half of the qualifying leaseholders need to agree to the purchase. If you wish to go ahead the next step is usually to ask your solicitor to form a management company.
The freeholder then has a further month to send a contract to the leaseholders. They have two months to sign the contract and pay the deposit. Completion will take place on the date written in the contract.
If the leaseholders decline the RFR offer, the freeholder can then sell the freehold on the open market to whoever they choose. However, it’s important to note that the freehold cannot be sold at a lower price or on different terms most contained in the original RFR offer. In order to sell at a lower price, the freeholder will need to go back to the leaseholders and offer to sell to them first at the reduced price.
Click here to read more about the Right Of 1st Refusal
Disputes often arise between freeholders and leaseholders. These include:
· Service charge disputes, where flat owners disagree with the amount requested or refuse to pay or pay late
· Maintenance disputes, where flat owners want work carried out but the landlord fails to do this or is slow to arrange it
· Management company disputes, where flat owners disagree with the decisions taken by the management company or between themselves
· Disputes over enforcing the terms of the lease, for example, flat owners may want the landlord to take action against a flat owner who is breaching their lease by causing a nuisance
If this kind of dispute does arise, it’s a good idea to get initial legal advice at an early stage. Our specialist freehold solicitors and our property dispute team regularly work together tohandle freeholder/leaseholder disputes and will try and deal with matters before they escalate.
Click here to read more about freeholder & leaseholder disputes
Absent freeholders – lease extension, enfranchisement and right to manage
If you own a flat and you cannot locate your freeholder, you may still be able to exercise these kind of legal rights, by applying to the County Court for what is known as a vesting order.
However, the process is different and will involve you in more legal costs of your own – though this will probably be more than offset by the fact you won’t have to pay your freeholders legal or valuation costs and with regard to lease extension and enfranchisement, there is a very good chance that you may end up paying a lower premium than you would if negotiating with the freeholder
It will usually be an advantage to the flat owners to take over the flat management where there is no freeholder doing this. As well as making sure the block is well-run and properly maintained, it will be a benefit when a flat is sold.
It’s worth noting that even fewer freehold solicitors deal with vesting orders than with lease extension or freehold purchase.
But rest assured, our team have plenty of experience in this area, and successfully apply for vesting orders on a regular basis.
Click here to read more about missing freeholders