Rights of extension and purchase for leasehold houses

The press for leasehold houses has been less than positive of  late, particularly concerning ground  rents, but leasehold houses are not  a modern phenomenon and existing legislation is favourable to lessees. 
 

Sheffield is a leasehold house hotspot in the United Kingdom and being a Sheffield-based law firm, PM Legal Services has expert knowledge of the complexities and the various legal issues that arise from them.

 

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A leasehold house is a diminishing asset that could, in certain circums tances, become unmortgageable. 
 
This in turn will affect its sale value. 
 
Under the Leasehold Reform Act 1967 (‘the 1967 Act’), the leaseholder of a house has a right to extend their lease or purchase the freehold inte rest. Our advice is never to opt for a  lease extension, because it can only be granted once and only for a period of 50 years. 
 
Furthermore, if the lease is extended and then a freehold purchase is subsequently pursued, the valuation  of  the house will be carried out on a  ‘special valuation’ basis - meaning  that it is the premium of the house  including a share of the marriage value. As a rule, this will mean a higher  premium will be paid. 
 
As such, it is always best to go down the freehold purchase route. This is an option available to every lessee, provided particular criteria are met for them to qualify. To be eligible, the property concerned must be a house and the lessee must have owned it for more than two years (although they do not have to have lived in the house for this period).
 
Finally, the original lease must have been longer than 21 years. If these three criteria are satisfied, the leaseholder is likely to have the right to purchase the freehold.  
 
THE PROCESS
 
In brief, the process for both a lease extension and freehold purchase follow a very similar format. 
 
A Notice is served on the competent landlord  in both processes and they have the opportunity to respond – admitting the claim or disputing it.  This is a statutory process so it is important for the Notice to be correct as failure to do so could render it invalid.
 
For a freehold purchase, there is likely to be some negotiationwith the landlord about the premium but it will be based on a formula within the legislation. Once this is agreed, however, this triggers the date for completion, which should  be four weeks after the agreement. If the premium is not agreed, an application to the First Tier Tribunal (‘FTT’) can be made to determine it and any other terms that have not been agreed between the parties.
 
DISPUTES REGARDING THE PREMIUM
 
If a dispute arises about the premium to be paid, the FTT has jurisdiction to determine the same. In order to make the best case to the FTT, it is important that parties instruct an experienced valuer to forward arguments relating to the basis of the premium to be paid.
 
While leasehold houses are getting bad publicity at the moment, leaseholders should be reassured that there is legislation out there that specifically relates to them that can assist.
 
Liz Rowen is associate solicitor at PM Legal Services

 

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