The Announcement: should I buy my freehold now or wait?

The Government announced big changes to the procedure for enfranchisement (buying the freehold). Please see our blog for full details: https://www.meaby.co.uk/leasehold-reform-big-changes-announced/

The announcement poses the question should leaseholders buy their freehold now or wait? A number of factors need to be considered and it will depend on the circumstances in each case.

The Government’s announcement is a basic bullet point list of its intention. There is no guarantee what or when (if at all). Please bear this in mind when making your decision.

Firstly, your reasons for buying the freehold will be important. If a leaseholder is considering purchasing the freehold so that they have greater control over the management of the block, then the government’s proposals for commonhold ownership (allowing blocks of flats to be jointly owned and managed) may deal with that issue and it may be worth waiting for further government announcements on the topic. However, no time frame or detail has been given. You may have pressing management concerns which means that you feel you cannot wait to see what the new law will be.

Secondly, the Government has said that a cap will also be introduced on ground rent payable when a leaseholder chooses to either extend their lease or become the freeholder. We do not yet know how this might apply when only some of the tenants buy the freehold.

Thirdly, many of our clients have asked whether this will be retrospective. We simply do not know. Therefore, if you continue an ongoing enfranchisement claim you are safest to assume that the terms will be as per the current law.

Fourthly, buying the freehold sometimes means that the tenants have the right to develop in to other areas where those areas are not demised under one of the leases. That is called development value. The Government’s press release says that to avoid having to pay ‘development value’ to the landlord, leaseholders can promise not to develop the building further. If you are undergoing enfranchisement and do not have any development intentions then it may be cheaper to wait. However, we cannot say how much cheaper it would be, when the new rules will come in and what those new rules will look like. We also do not know what the procedure will be if you change your mind in the future.

The fifth point that we would make is those leaseholders who have already begun the process of purchasing their freehold may have already incurred significant costs such as surveyors and legal fees. Here, it may be worth considering proceeding due to the expenditure already incurred. The press release refers to making this process cheaper but we have no detail on this. Tenants who abandon the process now will have to pay their own and the Landlord’s costs now under the old regime. We do not know what the future costs may be.

Our next reflection is that leaseholders often group together to buy their freehold in order to deal with variations to their leases and lease extensions. Whilst the government’s announcement on lease extensions affects the statutory route for lease extensions, it does not impact the informal procedure at this stage. The informal route allows leaseholders who also own their freehold to grant themselves leases for up to 999 years on the terms that they decide at a nominal premium. Therefore, in this circumstance, the proposed changes to lease extensions do not have all that much impact and leaseholders may want to proceed with purchasing their freehold now.

Finally, will it be cheaper if you wait? Possibly, yes. The calculation of the premium for a freehold interest subject to leases with a term of 80 years or less left to run is more expensive. We shan’t explain why here as it is detailed and complicated. If one of the leases in your block has lease terms less than 80 years then it may be cheaper to wait for the new rules. However, we cannot say how much cheaper it would be, when the new rules will come in and what those new rules will look like.

If you’re already in the middle of the enfranchisement process you may query what is best for you to do. Your process will probably be finalised before any new law receives royal asset. There may be pressing reasons for enfranchising now, for example solving a problem that makes it difficult for you to sell or refinance your property. You may wish to consider whether you are in a position to withdraw your claim and start again.

If you would like to discuss enfranchisement, please contact the Leasehold Property Team: brose@meaby.co.uk or ncleightonhills@meaby.co.uk or call 0207 703 5034.