How Leasehold Enfranchisement Can Assist Stranded Homeowners?

Some people are struggling with the burden of cumbersome rent payments, especially when the cost of living expenses has spiralled. They don’t need to give up hope! Leasehold enfranchisement can assist, especially as the Government has reformed leasehold tenure to “make buying/extending lease agreements “easier, faster, fairer and cheaper”.

A leasehold property is owned for a set period as mentioned in the lease. What is leasehold enfranchisement? As estate agents in Sittingbourne can explain, it is an alternative to extending a lease. By purchasing the freehold of the property, the leaseholder becomes the freeholder, with many advantages, some of which are listed below.

Owning the property:  Leasehold owners have been known as “owners yet tenants”. This is because leaseholders have some benefits like a financial contribution to the property, but they still have a landlord who will finally take it back on the expiry of the lease. By entering a leasehold enfranchisement, the leaseholder purchases the freehold and owns the land and property outright. This also means that, unless they decide to sell, they will own the property for always.

No more rent payments:  The leaseholder becomes the freeholder and does not have to pay rent or be restricted by conditions in the lease. Leaseholders have been faced with rent increases by landlords, which have left them trapped. By extending their lease to a maximum term of 999 years at zero ground rent, the dream of fully owning their home can come true, without additional expenses. The savings accumulated on this could become a tidy sum.

Security:  With leasehold enfranchisement, the problem of owning a “wasting asset” is overcome with the long-term security it offers. The longer the enfranchisement, the more the security and value of assets are protected.

Collective enfranchisement:  If living in a block of apartments, leaseholders of the apartments can collectively purchase their freehold of the block. This collective enfranchisement provides the same advantages as a lease extension, but allows control over the property, instead of having it managed by an “outside” landlord. There are other benefits as well – they can

  • then extend their own leases to 999 years,
  • alter the leases so that they will no longer pay ground rent,
  • gain control over the management of the building,
  • correct any defects in their leases.

The leaseholders should first check whether their building qualifies for collective enfranchisement. There are also qualifications for participating tenants in a collective enfranchisement, such as owning at least half of the apartments in the block, with a limit of the internal floor area for non-residential use, etc. Also, details of assessing the premium, choosing a nominee purchaser and serving Initial Notice on the freeholder should be checked out thoroughly.

Insurance:  In these uncertain times, landlords are taking rent protection measures in the form of Rent Guarantee insurance in case tenants are unable to pay their rents. They sometimes try to offset these charges against the rental amounts. With leasehold enfranchisement, the freeholder will not have to take on this burden – the choice of an insurance policy can be made to satisfy his/her/needs.

Guidance of a lawyer:  With the many benefits of leasehold enfranchisement also come various responsibilities. As explained above, the leaseholder needs to check whether he/she is a “qualifying tenant”. Also, the Right to Manage (especially with collective enfranchisement) brings a whole gamut of issues that will need to be discussed and decided upon. Some of these include:

  • Services such as cleaning, lighting, gardening,
  • Repairs and maintenance of the building and common areas,
  • Collecting and accounting service charges,
  • Statutory requirements of Right to Manage and complying with the same,
  • Day-to-day issues with management,
  • Insurance.

It is advisable to take the services of a professional lawyer or solicitor who will be able to offer guidance on the above. Any disputes among the qualifying tenants can be smoothed over with the help of a solicitor. A lawyer will also assist with the legal issues of serving the Initial Notice and other formalities. It will be less expensive with collective enfranchisement, as the costs can be shared among the participants.

As mentioned in the government’s leasehold reform plans, “The provisions, when in force, will apply only to new lease agreements (ie not retrospectively).” Hence, they do not include plans for compensating leaseholders who believe they have been overcharged in the past. This should also be noted.

Conclusion:   It is good to be aware of the pros and cons of every decision we make. With regard to leasehold enfranchisement assisting stranded homeowners, the pros seem to outweigh the cons. However, before taking this step forward, a leaseholder needs to study and clarify all aspects. Once this is done, we are sure the relief from worries of being a continued leaseholder will be worth the hard work and effort to become a freeholder!

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