An important step has been taken toward giving leaseholders more rights to extend their lease or buy the freehold of their house. Leaseholders can now start this process without having owned their property for two years.
The rule, previously part of legacy legislation, was approved in the Leasehold and Freehold Reform Act 2024.
Campaign groups have welcomed the change, which ensures leaseholders have easier access to these rights and that claiming enfranchisement rights is not unnecessary. The change occurs imminently and will be in place on 31 January 2025.
Our Residential Property Solicitors explore what this change means for leaseholders and how it may impact the property market.
Why would you need to extend your lease or enfranchise?
A lease of a property is for a fixed term of years. When that term falls under approximately 80 years, this is considered to be unfavourable to many mortgage lenders who may refuse to agree to lend on a property.
The shorter the lease term, the higher the premium that the leaseholder will have to pay.
Enfranchisement is the process by which a leaseholder approaches their freeholder to buy the freehold of their property.
Those who own a house may instead decide to try and buy the freehold of the house rather than go down the lease extension route.
How do you extend your lease?
Leaseholders can extend their lease under an informal or formal statutory route.
Informal Route
Under the informal route, a leaseholder can approach the freeholder and ask whether they would agree to negotiate a lease extension. The freeholder does not need to respond or agree to this.
The benefits of this process are that it could save time and money in the long run, as the terms may be agreed between the parties.
The risks are that the freeholder may only agree to extend a lease by including onerous terms in the new lease or requesting a high premium.
As there is no obligation on the freeholder to agree to this, a leaseholder may hit a dead end in negotiations so would have to then go down the formal route.
Formal Route
Under the formal route, a leaseholder has more protections, and the process is prescribed by statute.
There are timescales to be followed, and a formal valuation would agree the premium for the lease.
The leaseholder must serve a Section 42 notice on their landlord, who then has two months to respond.
The downside to this route is that a leaseholder will have to agree to pay the freeholder’s legal and valuation costs as well as their own.
Due to the strict steps involved, it can also be a slower process. If terms cannot be agreed, then the court may have to get involved.
Previously, one of the qualifying conditions for utilising the formal route is that you would have had to own the property for two years.
What about enfranchisement?
As with lease extensions, you can take an informal route or a formal route.
The informal route allows you to approach the freeholder to ask whether they would sell the freehold but there is no obligation on them to agree.
With the formal route, there are procedures and timescales both parties would need to adhere to, including the service of notices.
Is this likely to impact the property market?
This may mean that people who previously have been put off buying leasehold property could be more inclined to proceed in the knowledge that they can quickly deal with a lease extension or enfranchisement as soon as they complete their property purchase.
They will not be at an unfair disadvantage as they would previously have had to wait for two years, effectively meaning they lose out from the outset.
Sellers who previously may have agreed to assign the right to extend the lease or enfranchise, or included this as part of the sale of their property may also benefit from this change.
They no longer need to start this process and deal with this with their sale in order to incentivise buyers to purchase their property.
This recent change may drive the premium that freeholders may try to charge for lease extensions and enfranchisement.
Campaigners believe that there is still some room for improvement in the process overall, and this may be dealt with by future legislation.
Contact Our Residential Property Team
Taking professional advice from a solicitor at an early stage can make the process easier and less daunting.
At Myerson, we have qualified Residential Property Solicitors who can deal with both the informal and formal routes for lease extensions and enfranchisement.
01619414000
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Olivia Heston-Morris
Associate
Olivia joined Myerson as a Trainee Solicitor in September 2019 and undertook her first seat in the Commercial Property department.
Prior to joining Myerson, Olivia worked as a paralegal in-house for a non-departmental public body working on Freedom of Information requests and environmental matters involving protected sites and species.
Olivia studied French and Spanish at the University of Southampton, graduating in 2013 with a 2:1. Following this, in 2015, she went on to study the Graduate Diploma in Law at the University of Law Chester campus, attaining a Commendation, and then studied the Legal Practice Course as a Masters in Law attaining a Distinction.
About Olivia Heston-Morris