Leasehold Houses - Valuation for enfranchisement
How much does it cost to buy the freehold of a leasehold house? This guide outlines the valuation principles for enfranchising a leasehold house
Answers to specific problems are available in the Frequently Asked Questions on Houses.
This leaflet is not meant to describe or give a full interpretation of the law; only the courts can do that. Nor does it cover every case. If you are in any doubt about your rights and duties then seek specific advice.
This guide outlines the qualification requirements for a tenant to buy the freehold of their leasehold house it also gives an outline of the procedure. It does not deal with valuation of the price to buy the freehold. Please see our advice guide on Valuation for buying the freehold of a leasehold house for this.
Although the terms “Landlord” and “tenant “are used in the legislation, these do refer to freeholder and leaseholder respectively.
The Leasehold Reform Act 1967 (the 1967 Act) gives leasehold tenants of houses the right to buy the freehold. The right to compulsorily purchase the freehold (and any intermediate leasehold interest, e.g. head lease) is termed enfranchisement. Some freeholders will sell the freehold without the need for a formal claim, but, whether a claim is made or not, the leaseholder should obtain professional advice to find out roughly what the whole process will cost.
The 1967 Act has been amended and extended over the years, which has made the rules for calculating the price somewhat complicated. The latest amendments are contained in the Commonhold and Leasehold Reform Act 2002 which simplified qualification and provided additional rights.
The right to enfranchise is dependent upon a number of qualifications for the house, the lease and the leaseholder; these are set out below.
It must be a building reasonably considered a house, divided vertically from any adjoining house. It does not matter if it has been divided into flats so long as you have the lease of the whole house.
Certain buildings containing commercial premises can qualify as a house within this definition. A lease of a building comprising a shop with a flat above may qualify for enfranchisement.
It must be a long lease, originally for a term of more than 21 years or with a right to renewal.
A qualifying tenant must be the leaseholder of the house at the time of application and must have held the lease for the past two years. In addition, where a leaseholder who is eligible for the right to the freehold dies, his personal representatives can serve a notice for purchase within two years of the grant of probate or letters of administration.
What is included?
The right is to acquire the freehold of “the house and premises”
The definition of “premises” under the Act includes any garage, outhouse, garden, yard and appurtenances let to the tenant with the house. The premises must be let with the house but this could be by a supplemental lease or deed.
The landlord can require the inclusion of premises in the sale where it would cause hardship or inconvenience for him to retain them. Alternatively he can also ask to retain certain additional premises, if he has an interest in other premises and hardship or inconvenience might be caused if he did not retain them.
The procedure for buying the freehold is set out in the 1967 Act and in the Enfranchisement Regulations of the same date. The procedure does not follow the same clear time lines as when enfranchising flats or extending your lease.
The tenants notice
The process is started by the tenant serving a “tenants notice “on the landlord. The landlord or “reversioner” is the person who has a tenancy of 30 years or more than the applicant tenant. This will usually be the freeholder. If there are any intermediate landlords, notice should also be served on them.
The notice should be in the prescribed form set out in the regulations, or substantially to the same effect. If in doubt it is best to use the prescribed form.
There is no requirement to include a proposed price in the notice. The service of the notice has the effect of creating a contract between the parties to grant and accept the freehold. The contract is on the statutory conditions of sale set out in the regulations. The price to be agreed is based on the formula in the legislation, see below.
The notice should be signed by the tenant or joint tenants, if this is the case. Case law has suggested that signature by a duly authorised agent is sufficient. The notice can be served in person, or by post at the last known address in England and Wales of the landlord.
The landlord`s response
If the landlord wishes to serve a “notice in reply”, he should do so within 2 months of the date of service of the notice of the tenant`s claim. The failure of the landlord to serve such a notice does not prevent him from negotiating over valuation, nor challenging the validity of the tenant`s notice, although there could be costs consequences for non-service if the matter goes to court. Also, if he does not serve a notice he cannot later challenge the extent of the premises he wishes to be included, or excluded, from the claim.
If the landlord does choose to serve a notice in reply he should specify whether he admits the tenant`s claim and, if not, the grounds for disputing it.
The landlord can require a deposit to be paid of three times the annual rent of the property
Procedure following date for landlord`s reply
If the tenant`s claim is admitted in the notice in reply, the subsequent procedure is governed by the Enfranchisement Regulations which set out the statutory conditions of sale. These run alongside the negotiations to agree the price.
The requirement to complete the sale is triggered by agreement on the price .The regulations state that completion should take place at least 4 weeks after this date.
If there is no agreement on price, the tenant should apply to the First Tier Tribunal (Property Chamber) or the Leasehold Valuation Tribunal in Wales, for a determination of the price who may also deal with a dispute on the terms of the conveyance e.g. the extent of the house or premises or the rights or covenants to be included in the conveyance.
If the tenant`s claim is not admitted (either in the notice in reply, or by non-service of a reply) he will have to apply to the County Court to assert his right.
As stated above, completion can take place 4 weeks after agreement on the price. However, the completion date itself is triggered by a notice, given by either party, specifying the first working day four weeks after giving the notice.
If either party is failing to comply with its obligations arising from the tenant’s notice or statutory conditions, a two month “default” notice can be served by the aggrieved party. This notice should refer to condition 10 of the statutory conditions, specify the default and require the other party to make it good before the expiration of the notice.
If the tenant fails to comply with the above notice the contract is discharged and the landlord can forfeit the deposit. If the landlord fails to comply, the contract is discharged, the tenant does not have to pay the landlord’s costs and his deposit is returned.
In most cases the tenant will wish the contract to be completed so is unlikely to serve a default notice. They are more likely to seek to use other remedies such as seeking specific performance of the contract (ie obtaining a court order to force the landlord to complete).