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Freehold Purchase - Advise for Freeholders

Background
It is a fact that long leaseholders (of flats) are learning to there cost, that it is becoming frequently more difficult to sell their properties, once the lease has a period of near 80 years or less to run.

Most prospective purchasers will now insist that a lease in the region of 80 years, be extended before they purchase.

Consequently landlords are now receiving regular enquiries as to the cost of granting a lease extension. These enquiries may take the form of a simple phone call or letter, or may be initiated by a formal Notice of Claim under that section 42 of the Leasehold Reform, Housing & Urban Development Act 1993 (as amended).

Most landlords are aware that freehold reversionary interests are a valuable investment, but few in our experience are aware of the impact of statutory legislation and the associated valuation procedures, that must be considered, if a leaseholder serves formal notice to obtain a lease extension.

Consequently whenever a query is received it is imperative that sound professional advice is obtained. It would be unadvisable to enter any form of negotiations without first having sought professional valuation advice.


Qualification
The rules enabling a tenant to request a lease extension have been greatly simplified. Provided the lease when granted was for a term in excess of 21 years and the tenant has owned the property for at least two years, they will generally qualify. Even if the property has not been owned for two years, it is possible that the existing tenant may have taken an assignment of his predecessor’s statutory rights to qualify.

Please contact us so that we can assess your tenants’ statutory rights.


Valuation Matters  
The valuation issues involved are fairly complex, but briefly the landlord (freeholder) is entitled to compensation for:

  • Loss of the ground rent income, which is payable under the terms of lease.
  • Loss of the right to the reversionary interest at the expiration of the lease. That is to say the right to receive the flat back at the end of the original lease.
  • Where the lease has less than 80 years to run, under current legislation, the landlord is entitled to a 50% share of any additional value (marriage value), which results from the merging of the new and old leases. This is more precisely the difference between the freehold value of the flat and the combined value of the landlords and leaseholders existing interests prior to the grant of the lease extension. 

I have received an enquiry to grant a lease extension.  What action do I take?
Whether you welcome your leaseholder(s) enquiry or not, doing nothing is not an option. Some landlords have found to their considerable cost, that ignoring formal Notices has resulted in their tenants acquiring a lease extension at a lesser sum than its true value.

In the majority of cases, we will be able to provide you with comprehensive valuation advice at no direct cost to yourself. This is because the legislation provides for the leaseholders to meet the professional costs of the landlord, following service of formal Notice. Alternatively if a formal
Notice of Claim has not been served it will be the usual to put in place an undertaking to ensure that your costs are met by the leaseholder making the enquiry.


Contact
For a free informal discussion please call Mike Stapleton FRICS on 01702 562072 between 9am and 7pm, Monday to Friday. Alternatively if you prefer please click here to direct your query to us by e-mail.

 
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