Obtaining a new lease
A long lease of residential accommodation can become difficult to sell and difficult to mortgage if the unexpired residue of the term falls below a certain number of years. It is a deteriorating asset and should be extended periodically to maintain its value. The longer it is allowed to depreciate, the more expensive it becomes to effectively buy back the property.
There are different regimes for flats and houses and the rules differ slightly. Although often self-evident, there can be unusual situations for certain types of building where it may not be immediately clear whether the property is a house or a flat. It requires careful analysis, a review of the lease and potentially an inspection of the property.
Qualifying tenants of a house
A qualifying tenant of a house under a long lease who has held the lease for at least 2 years may have the right to either acquire the freehold or to obtain a new lease. A qualifying tenant of a house normally asserts the right to buy the freehold in return for a premium. The tenant may also have the statutory right to a new lease for the original term plus an additional 50 years at a modern ground rent but with no premium payable. This right is not often exercised in practice as the right to buy the freehold is generally considered the more attractive option.
Qualifying tenants of flats
Qualifying tenants of flats have several rights. A tenant asserting individual rights must usually be able to prove ownership of the lease for at least 2 years before acquiring any statutory rights. They have the right to extend their lease for the original term plus an additional 90 years at a peppercorn rent in return for the payment of a premium to the landlord. This right can be exercised individually and proves more common in practice than collectively purchasing the freehold.
Tenants of flats may also have the right to club together to collectively buy the freehold or to manage the freehold themselves, usually through a nominee company. This will depend on whether there is a commercial element to the building, the number of flats in the block, the number of flat owners who qualify, and of those, how many choose to participate. Each case is different, requires careful analysis and turns on its own facts. This right is less commonly exercised in practice as it requires the cooperation of several parties.
It is possible for a seller to transfer the benefit of his statutory rights to a buyer on completion of a sale provided the correct procedure is adhered to.
Valuation in the context of collective enfranchisement and lease extensions is complicated. A prudent qualifying tenant should therefore also take the advice of a specialist surveyor at an early stage.
We act for both landlords and tenants in this complex area and can advise you throughout the entire process.
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