1 June 2018 by

Freehold Purchase of a House pursuant to the Leasehold Reform Act 1967

Earlier this year the Government announced its intention to stop the sale of new leasehold houses.

This has certainly seen an increased interest in how, if you currently own a leasehold house, you can obtain its freehold.

Which route?

There are essentially two ways this can be done:

  1. The voluntary route – by “simply” negotiating the terms of your purchase on a voluntary basis with your landlord. If the parties can reach agreement fairly quickly, this can help both parties from incurring more legal costs than may be necessary; or,
  2. The statutory route – commenced by serving a notice on your landlord to acquire the freehold pursuant to the Leasehold Reform Act 1967 (“the Act”). There are certain conditions that must be met in order to qualify for this route, which have been explained briefly below,

Whichever route is taken, the first point to consider is what value should be attached and potentially offered for the freehold purchase.  A surveyor would be able to undertake a valuation in this regard.

Qualifying Conditions for a Statutory Purchase

If only the statutory route is available then under the Act, a ‘qualifying tenant’  of a leasehold house is entitled to acquire the freehold of their property, provided a number of qualifying conditions can be satisfied.

The qualifying conditions can be quite complex and usually require a fair bit of investigation at the outset.  A brief summary of the qualifying conditions are set out below:

The Property

You must be the tenant of the whole of a leasehold “house”, the property must be:

(i)         a building;

(ii)        designed or adapted for living in; and,

(iii)        “reasonably so called” (e.g. a house which is used entirely for commercial purposes, such as a short term holiday let, would not fall into this category).

The house must also be structurally detached with no underhangs or overhangs with another structure.

You will also be entitled to claim any additional property let to you with the house.  Careful consideration should be given as to whether any additional property should be claimed.  As long as the additional land is let to you with the house as part of the same transaction as the original lease, or by way of a subsequent variation to the original lease, the additional property includes gardens, garages, driveways, yards to name but a few.

The Tenancy

The tenancy must be a “long tenancy”, one that was originally granted for a certain term exceeding 21 years and at a “low rent”.

The “low rent test” has in the great majority of cases now ceased to be a qualifying condition; however, it is still relevant for the purpose of determining the method of valuing the freehold and in certain limited cases the low rent test remains applicable as a qualifying condition.

The Qualifying Tenant

It is necessary for the tenant to have been a qualifying tenant of the house for the continuous period of the last two years i.e. for a period of two years before the Notice is served.

Exceptions

There are certain exceptions and exclusions under the Act which are not considered in any detail here but would need to be considered on a case by case basis.

 

The Statutory Process

The process is started by the tenant serving a Notice of Claim on the landlord in the form prescribed by the 1967 Act Regulations. The Notice will set out the tenant’s details, property particulars and the valuation method on which the tenant claims the premium payable should be calculated.

On receipt of the tenant’s Notice the landlord can require that a deposit of three times the annual rent (or £25, whichever is the highest) is paid within 14 days and, in addition, the landlord can require the tenant to provide proof of title within 21 days.

Once the landlord has received the tenant’s Notice of Claim there is a two month window in which the landlord can serve a Counter Notice on the tenant.  The landlord’s Counter Notice can admit the tenant’s claim; reject the tenant’s claim; or, state that the landlord intends to take possession of the property as principal residence.

Once the Counter Notice has been served on the tenant, if the landlord admits the tenant’s claim, negotiations will take place between the parties’ surveyors on the premium payable. The parties will also need to give notice of the rights of way and restrictions they require to be included in the transfer of the freehold.

Both the landlord and tenant have the right to make an application to the First-tier Tribunal (Property Chamber) on the issue of the price to be paid and/or terms of the transfer of the land.  Such an application can be made by either party after the landlord has confirmed the amount required for the freehold or two months have elapsed from the tenant’s Notice of Claim without reply.

On the expiry of one month from the agreement of the price to be paid for the freehold, the landlord and tenant have a right to serve a notice to complete on the other party requiring a completion date in 4 weeks from that notice. The completion date can otherwise be agreed between the parties.

Finally

The statutory process can be fairly complex and requires a close working relationship between a solicitor and surveyor.  If you would like to speak to one of our specialist solicitors please contact one of our solicitors in the Enfranchisement team here.

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