Leasehold Enfranchisement and leasehold management- 5 key things to know

What is a leasehold? 

A leasehold is holding a property on a lease for a fixed term, with an annual ground rent fee reserved. It is a form of home ownership that gives the leaseholder exclusive rights to live in a property for a fixed number of years, known as a term. 

Lease extensions

Leasehold extensions allow a landlord to charge a premium to extend the fixed term of the lease. Once the lease goes below 80 years, the landlord can additionally charge ‘marriage value’ for granting a lease extension. This increases the cost of getting a lease extension. 

There are two ways in which a leaseholder can secure a lease extension for their property: negotiated or statutory. A negotiated lease extension is where the parties involved agree to the premium charge, new lease terms and ground rent. Statutory lease extensions take place where a leaseholder has owned the property for two years, following which they can then apply for a statutory lease extension. 

Leasehold reform

The draft Leasehold and Freehold Reform Bill was introduced in November 2023 and is now at the Committee Stage in Parliament following a second and third reading. Proposed reforms include: 

• Proposal to increase the standard lease extension term for 990 years.
• Removal of the two-year ownership requirement, in order to be eligible for a statutory lease extension. 
• Removal of ‘marriage value’ from the premium calculation, making it cheaper to extend a properties lease. 
• Greater transparency in relation to service charges levied on leaseholders. 
• Building on the Building Safety Act (2022) to ensure that leaseholds are protected and ensuring building remediation costs lie with the developer and landlord. 

Collective enfranchisement

A right created by the Leasehold Reform Housing and Urban Development Act (1993), which allows for ‘qualified leaseholders’ to acquire the freehold interest in the building. In order for a claim to be successful, no less than 50 percent of the leaseholders need to participate in the acquisition in order to make a claim. 

A tenant’s right of first refusal – s. 5 under the Landlord and Tenant Act 1987

A landlord who is selling the freehold of a block or flats has to give a right of first refusal to the flat leaseholder prior to the selling of the freehold to a third party according to The Landlord and Tenant Act (1987). More than 50 percent of the leaseholders must participate in order to accept the ‘right of first refusal’ offer from the landlord. 

Right to manage (RTM)

There is a given ‘no fault right’ under the Commonold and Leasehold Reform Act (2002), which permits all leaseholders to apply for the right to manage the blocks in which their flats are situated. This is a powerful tool which can be used by leaseholders which allows them to no longer need to provide fault on the part of the landlord in order to successfully acquire the right to manage.