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
By Simon Tye, Legal Adviser
This article will not deal with the qualification requirements for buying the freehold of a leasehold house, but will concentrate on the procedure and law, assuming that the leaseholder has the right.
The procedure for buying the freehold of a leasehold house is set out in the Leasehold Reform Act 1967 (1967 Act) and in the Regulations of the same date. The procedure is not as clear cut as when extending the lease or collectively buying the freehold on flats. There are not the same clear time limits or procedural steps imposed by the legislation.
Although the terms “Landlord” and “Tenant” are used in the legislation, these do, of course, refer to freeholder (or intermediate landlord) and leaseholder.
THE TENANT’S NOTICE
The process is started by the leaseholder serving a “tenant’s notice” on the landlord or an intermediate landlord. If the tenant is aware of any other person with an interest in the property superior to his own, then a copy should also be served on them and referred to in the notice.
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.
A major difference from flat leasehold enfranchisement is that 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 1967 Act. The notice should be signed by the tenant or joint tenants, if this is the case.
Alternatively it can be signed by their agent (eg solicitor or surveyor). The notice can be served in person, or by post at the last known address in England and Wales of the landlord, or intermediate landlord.
If the landlord wishes to serve a “notice in reply”, he should do so within two months of the date of service of the notice of tenant’s claim. The surprising fact is that failure to serve a reply does not prevent the landlord 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 “Appropriate Tribunal “(First-tier Tribunal (Property Chamber) in England, Leasehold Valuation Tribunal in Wales) for a determination of price and any other point in dispute (eg, 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 (and not the Appropriate Tribunal) 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).