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Companies - and other non occupying owners of houses and
flats - your new rights to extend your lease or acquire the
freehold (updated June 2006)
Until 2002, companies and other non occupying owners of leasehold
houses and flats had no rights under the Leasehold Reform
Act 1967 (which gave rights to the lessees of houses to extend
their leases or acquire the freehold) or the Leasehold Reform,
Housing and Urban Development Act 1993 (which gave rights
to the lessees of flats to extend their leases and/or collectively
acquire the freehold with their co-lessees). This was because
there was a residence test requiring lessees to have occupied
the house or flat as their main residence for varying periods
of time. A company was considered unable in law to reside
at a property.
The Commonhold and Leasehold Reform Act 2002 abolished the
residence test in its entirety and replaced it with a two
year ownership requirement; thus companies and other non occupying
owners now have the right, having owned a leasehold house
or flat for two years, to approach the landlord and require
a lease extension, or a transfer of the freehold interest.
It has always been the case, and remains the case, that the
lease concerned must be a long lease i.e. for a term exceeding
21 years when originally granted. It does not matter if there
are fewer than 21 years left to run.
Flats
Once a company or other non occupying owner of a flat has
owned it for two years, it is entitled to require the landlord
to grant a 90 year extension to the existing lease. By way
of example, if the lease has 30 years left to run, the new
lease will be for a term of 120 years. Any ground rent payable
will be reduced to one peppercorn per annum.
The calculation of the price payable to the landlord for
the lease extension can be complex, and has always included
three components:
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the reduction in the value of the landlord’s
interest in the flat as a result of the lease extension |
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an element of the “marriage value”, and
in some circumstances |
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compensation. |
The 2002 legislation makes significant changes to the marriage
value calculation in favour of lessees so that:
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the lessee will only have to pay 50% of the marriage
value rather than at least 50% of the marriage value |
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the lessee will not have to pay any marriage value if
the unexpired term of the lease is 80 years or more, as
at the date of claim for a lease extension. |
Additionally, the valuation date is now to be fixed as the
date on which notice is given to the landlord of the claim
to extend the lease, so that any delays in the lease extension
process thereafter do not result in an increased price due
from the lessee, particularly in a rising market.
Once a Notice of Claim for a lease extension has been served
on the landlord, there is a strict statutory timetable for
negotiation of the price payable and, in the event that agreement
is not possible, referral of the matter to the Leasehold Valuation
Tribunal. Most lease extensions will be agreed and completed
within a period of approximately 9 months, or earlier with
the parties’ agreement and co-operation. Referrals to
the Leasehold Valuation Tribunal are relatively rare.
The abolition of the residence test also entitles a company
or other non occupying owner to participate with its co-lessees
in a collective acquisition of the freehold. In general terms
a collective acquisition must be taken forward by no less
than one half of the qualifying lessees in a building. In
reality it is often difficult to achieve a 50% consensus on
a collective acquisition, and even if such consensus is achieved,
the 50% will still be faced with the task of raising 100%
of the freehold price. For this reason, many lessees choose
to go down the lease extension route, which is something they
can do unilaterally.
Houses
Once a company or other non occupying owner of a long leasehold
house has owned it for two years, it is now entitled to claim
a lease extension (of 50 years), or the freehold. Again the
share of marriage value has been fixed by the new legislation
at 50% and no marriage value at all is payable where the lease
has an unexpired term in excess of 80 years.
Why should companies and other non occupying owners be interested
in these rights?
The shortening of any long residential lease has a depreciating
effect on it. This depreciation accelerates the shorter the
remaining term becomes. The right to require landlords to
extend leases and transfer freeholds:
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stops the depreciation process and enables
reinvestment in the property |
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averts a situation where prospective purchasers of houses
and flats are put off because the lease is so short and/or
because they cannot find a lender prepared to lend on
security of such a short lease |
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protects the value of dependants’ inheritance.
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How Charles Russell can help
We have an experienced team of property lawyers who have worked
for many years within the framework of this area of the law.
We have direct contact with valuers qualified to give prompt
and practical advice on all valuation aspects, enabling lessees’
claims to be taken forward effectively and efficiently.
Additionally we are able to advise owners on the tax implications
arising from leasehold enfranchisement.
The next step
The first step is for us to instruct and ascertain from a
valuer the likely sum which will be payable in respect of
the proposed lease extension or freehold acquisition. We can
then advise you on the likely total costs of the exercise,
including Stamp Duty Land Tax, Land Registry fees and the
legal and valuation fees involved. With this information you
will be in a position to make an informed decision whether
to proceed with the lease extension or freehold acquisition.
If you would like us to advise further on your claim to a
lease extension or acquisition of a freehold and the likely
price involved please contact Andrew Slatter, a partner in
our London office.
Contact details:
Andrew
Slatter, Partner, Charles Russell LLP
Tel - 020 7203 5159
Fax - 020 7203 5300
Email andrew.slatter@charlesrussell.co.uk
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