Our surveyors have extensive experience of valuing for lease extension and freehold purchases for both leaseholders and freeholders. The majority of claims fall under the Leasehold Reform, Housing and Urban Development Act 1993 (the 1993 Act) but there are certain circumstances when the Landlord and Tenant Act 1987 (the 1987 Act) applies.
Leaseholders have a choice between the formal route (via the service of a notice) or what is commonly called the ‘informal route’ (approaching the freeholder prior to serving a notice). Choosing between the multitude of options can be daunting but can be easily explained by a member of our team who will set out the best and most appropriate way forward.
Whilst occasionally the leaseholder and freeholder are on good enough terms to agree the premium without any further professional assistance, most cases are rather more adversarial and will require the surveyor acting for one side to negotiate with the surveyor acting for the other. If the premium cannot be agreed both parties do have the resolution of the First Tier Tribunal.
Lease extensions under the 1993 Act gives the leaseholder the right to an additional 90 years on top of their remaining term at a peppercorn ground rent. Owners will generally qualify under this legislation if they have owned their property for more than 2 years, which can prove to be a problem when a property is due to be sold. The good news is that this can be circumvented by the current owner serving a formal notice (S.42) and assigning the right of extension to the incoming purchaser. More detail on the extension process can be found on our Lease Extensions page.
Freehold purchases or freehold enfranchisements are also governed by the 1993 Act which allows the leaseholder of a building/block to collectively purchase the freehold from their freeholder. This is often used over and above the lease extension process when leaseholders wish to have more control over the management of their building; especially in relation to maintenance. There is no such 2-year qualification period with this route but the valuation is often more complicated and expensive, with reliance on the majority of leaseholders in the building participating in the process. Our Freehold Enfranchisement page looks at the process in more detail and explains the additional considerations.
Part III of the Landlord and Tenant Act 1987 (the 1987 Act) is a much less widely used piece of legislation, possibly because both the public and the surveying/legal professions are mostly unaware of it. It does however, upon meeting certain criteria, give the applicant the opportunity to acquire the freehold for significantly less than they would have done under the 1993 Act.
Our surveyors have vast experience of representing both leaseholders and freeholders in respect of each of the above Acts. This gives us a unique insight into both sides of the process and the most appropriate and best used strategies to reach the most advantageous conclusion regardless of who we act for.
Matthew Price (Hons) BSc MRICS has successfully represented clients at the First Tier Tribunal (FTT) and both he and Steve Hobbs have been selected as expert witnesses by the President of the FTT in absent landlord claims under both the 1993 and 1987 Act. We have gained a reputation for providing straightforward and competent advice. We also work closely with a number of prominent legal practices within the leasehold and enfranchisement arena.
Under the Leasehold Reform, Housing and Urban Development Act (1993), owners of a leasehold property can compel their freeholders to extend their lease by 90 years, and eliminate their ground rent in exchange for a sum of money.
To determine this sum, a valuation will need to be carried out by a surveyor working in the interest of the leaseholder, and a separate surveyor working in the interest of the freeholder. The valuation includes:
• Compensation for the loss of ground rent
• Compensation for the freeholder being unable to acquire the property for another 90 years
• Half of the “marriage value” created by the lease extension
If these two surveyors cannot reach an agreement, the case can be referred to the First-tier Tribunal for determination. For an idea about the potential costs of your leasehold extension, try our online leasehold calculator.
When you extend a lease the value of the lease becomes higher, and the value of the freehold becomes lower. When that lease is short the uplift in the value of the lease will usually be greater than the diminution in the value of the freehold. That additional ‘profit’ is called marriage value. Under the legislation, when a lease has less than 80 years left to run, 50% of the marriage value is payable to the freeholder when the lease is extended.
If the property still has 80 years or more on the lease the marriage value is disregarded, and the leaseholder will not have to pay it. This is why it’s financially beneficial to start the leasehold extension proceedings before the remaining term falls below this point.
The First-tier Tribunal – previously known as the Leasehold Valuation Tribunal is a sort of small court. At a hearing both surveyors submit their evidence, and the Tribunal members make a determination based on that evidence. The Tribunal can determine the compensation payable to the landlord, and/or the reasonableness of the costs incurred by the landlord that he intends to recover from the tenant.
If a leaseholder is seeking an extension to their term, there are two ways they can achieve this; by making a private agreement with the freeholder, or serving a formal notice, referred to as notice under Section 42.
This opens the legal procedure for compelling a landlord to grant a lease extension, and the leaseholder must include a date at least 2 months in the future by which the freeholder must respond. If no Counter Notice is served by the stipulated date, you can apply to the County Court, who may grant you a new lease on the terms proposed in your notice.
At Peter Barry Surveyors, our team has extensive experience working with leaseholders and freeholders to achieve a favourable outcome in a leasehold extension valuation. We have a unique insight into the strategies and processes of both sides, creating an advantage for our clients. Our team are proud to have a reputation for providing professional and impartial advice for our customers, that is easy to understand and follow.
There is more information about leasehold extension, what to do about absentee freeholders and details about freehold enfranchisement on the corresponding pages of our website. If you have a particular question about the services we offer at Peter Barry Surveyors, contact us today.
As an alternative to a lease extension, leaseholders in a block can acquire the freehold in what is technically known as enfranchisement (as a rule this is more than 50% participation).
READ MORE >>The Leasehold Reform, Housing and Urban Development Act 1993 (as amended) gives flat owners the right to a lease extension of 90 years on top of the current lease, and a reduction of their ground rent to a peppercorn.
READ MORE >>When flat owners find themselves with a missing freeholder it can cause real problems. The freeholder will typically be responsible for insuring the building as well as organising external maintenance and repairs.
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