9 October 2015 by

It’s time to pay up…

The process of leasehold enfranchisement provides a flat owner with the opportunity to extend the term of their lease, or collectively buy the freehold of the building, but at a cost. This cost will rise with every year that passes and the term of the lease remains unaltered. Many flat owners are unaware of the importance of extending a lease which has an unexpired term approaching 80 years, or the cost implications of letting the unexpired term of their lease fall below 80 years.

The formal process to extend a lease, and to purchase a freehold, is set out under the Leasehold Reform (Housing and Urban Development) Act 1993. A strict set of procedures need to be followed, with each stage having its own time restrictions. These include the length of time that the flat owner and the landlord have to reach agreement and move to the next stage.

If the terms of acquisition or extension have not been agreed between the flat owner and the landlord, within 6 months of the landlord’s counter notice, then an application to a higher authority is required to move the process along. Unlike most applications to a Court or Tribunal, a flat owner MUST make the application to a Tribunal in this case. If such an application is not made, then the flat owner’s notice is deemed withdrawn and they cannot make another application, for a lease extension or to collectively buy the relevant freehold, for a further 12 months.

At present, flat owners will pay a premium to either extend their lease or buy the freehold. They will also have to pay their own legal and surveying fees, and those of their landlord. The Ministry of Justice are currently considering introducing further costs, including an issue fee of £400 to make an application to the First Tier Property Chamber (FTPC) and a further £2,000 for the hearing fee itself.

The consultation paper on this proposal suggests that a flat fee risks tipping the balance of negotiations in favour of landlords. Potentially, a landlord could delay or disrupt the process to force a flat owner into making an application to the FTPC. Flat owners will be forced to consider more carefully how they will be funding the costs of the process, especially as any significant time delay on their part could mean that, when they do come to proceed, the premium payable will be even higher. On the other hand, the thought of potentially incurring further fees may focus the minds of the parties involved and make them more determined to reach an agreement.

In our experience, it is rare for there to be an ongoing dispute that proceeds to a Tribunal hearing; generally parties do reach an agreement. However, we will have to wait and see if the proposed new fee structure is introduced and, if it is, what effect this will have on the leasehold enfranchisement sector generally.

If you have any queries in the meantime, about extending your lease or purchasing your freehold, please contact Angela Alexiou at angelaalexiou@boltburdon.co.uk or on 020 7288 4787.

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