A new lease of life: - CentreForum

A New Lease of Lifebe extended to 170 years. 26 As long as a leaseholder is aware of theduration of their lease this should be a relatively simple process. Alease of 170 years is, in practical terms, equivalent to a freehold interms of its market value.The price of extending the lease depends on the market value ofthe flat (short lease with ground rents payable) and the value ofthe landlord’s interest (the capitalised value of ground rent and thepresent value of the flat when lease has expired). Also, marriagevalue (the additional value of owning the extra 90 years of leasehold)is included for leases with fewer than 80 years remaining. The majorissue here is extending the lease before it becomes too expensive,which requires knowledge of the lease’s expiry date and access tothe funds required to purchase an extension.Collective enfranchisementBuying the reversionary interest of a leasehold house has beenpossible since the Leasehold Reform Act 1967, although it wasnot until the 1993 Act that flat owners in qualifying propertiescould do the same. 27 Whereas a lease extension can be obtainedindividually, enfranchisement of flats or houses with common partsis a collective process and requires the support of at least half ofthe qualifying lessees. It gives tenants the right to compel the saleof their property’s freehold without having to prove any fault onthe part of the freeholder. A new company with directors mustbe set up for joint enfranchisement, and the participating tenantsmust collectively purchase the full freehold. 28 This is not only a bigundertaking in terms of effort on behalf of the tenants, 29 but alsorequires a significant financial commitment. If half of the tenants are26 There is no limit to how many times this can be done, so a leaseholder couldimmediately apply for another extension to create a 260 year lease. Note that flatscan be extended for 90 years whereas leasehold houses can only be extended for50 years.27 A qualifying property must be an independent building containing two or moreflats, two thirds of which must be occupied by qualifying tenants with an originalresidential lease of 21 years or more. A property is not eligible if the freeholderlives in it and there are four flats or fewer, or if more than a quarter of floor spaceis non-residential.28 The price of the freehold includes the building’s investment value to the freeholder(the capitalised value of his ground rents and the value of his reversion), halfof the marriage value on properties with fewer than 80 years remaining and apeppercorn rent.29 Tenants must serve an Initial Notice to their freeholders by a nominee purchaser(generally a company formed by the participants to acquire the freehold)representing the participating tenants. They must get an estimate for the value ofthe freehold and negotiate with the freeholder.20