Buying your freehold - the law in a nutshell

Many lessees may have heard the term “enfranchisement” without really knowing what it means. Basically enfranchisement is a group or collective right for leaseholders of flats to buy the freehold of the building they live in, regardless of whether the landlord wants to sell. Seeking a lease extension on the other hand, is an individual right for leaseholders to buy a new, extended lease which adds on 90 years to the unexpired lease with no ground rent.

Although the rights are slightly different, the procedures are similar.

For both collective enfranchisement and lease renewals, the leaseholder(s) must first serve upon the landlord an initial notice of claim. It is the formal service of these initial notices that triggers the strict timetable as set out by statute.

Counter-Notice

Once the initial notices have been served, the landlord must then serve upon the leaseholder(s) his Counter-Notice within two months of service of the initial notice. Negotiations will then ensue and if agreement cannot be reached, various applications will invariably be made to the Leasehold Valuation Tribunal for determination of the all/any of the contentious issues.

Although the procedure sounds fairly simple and straightforward, there are many pitfalls and traps for the unwary and legal advice should be sought.

A key element to both collective enfranchisement and lease renewals are the valuations - what does the landlord get for giving up his freehold and what do the lessees have to pay?

The leasehold valuation markets were rocked in 2007. And the reason? A series of appeals against a decision of the Lands Tribunal in the Sportelli case.

In the storm that surrounded the Court of Appeal’s decision in Sportelli, the burning question on the lips of all leaseholders up and down the country was, “Was the cost of buying the freehold or extending a lease going to increase in the aftermath of the Sportelli Judgment?”

The issues before the Court of Appeal were all to do with how the price paid for the freehold or lease extension is calculated. There were three issues:-

• whether hope value is payable on the enfranchisement of a leasehold house;

• whether hope value is payable on the enfranchisement of a block of flats; and

• what the appropriate deferment rate should be for calculating the reversion.

When handing down their decision on 25th October 2007, the Court of Appeal judges concluded that:-

• Hope Value is not included in the price payable for collective enfranchisement or lease extensions

• The Lands Tribunal was entitled to reject market evidence ; their reasoning being that the evidence before it was no practical assistance in determining the methodology for arriving at the appropriate deferment rate to be applied;

• It was totally appropriate for the Lands Tribunal to offer guidance and for the Leasehold Valuation Tribunals generally to follow such guidance as there is a public interest in avoiding wasted expenditure and the risk of inconsistent results in successive appeals from its decision.

Sportelli