17 July 2015 by

Has your Landlord given up on you and your building?

Lease Extensions and Collective Enfranchisements are hot topics at the moment for landlords, tenants and other property professionals following the rise in property prices and the diminishing term of years on leases granted prior to 2000. Where a lease is getting close to the 80 year unexpired mark, leaseholders are regularly being advised to consider a lease extension or a purchase of the freehold, in conjunction with their neighbouring tenants, under the Leasehold Reform Housing and Urban Development Act 1993 (the 1993 Act).

This is very good advice, particularly when you are looking to sell your leasehold property and protect your investment. It is rarely considered, however, that there is another option available to leaseholders to collectively acquire the freehold of their premises, which has some advantages over the process for Collective Enfranchisement under the 1993 Act.

Acquisition Orders are orders made by a County Court providing for a nominated person (often a company set up for the purpose of owning the freehold) to purchase the freeholder’s interest in the premises on particular terms, including the price payable for the freehold interest. An application for an Acquisition Order can be made where:

(1)     your freeholder is in breach of any obligation owed to its tenants under the terms of the lease, including any obligation to maintain, repair  and/or insure the premises;

(2)     a manager has been appointed by the County Court, in respect of the premises, for at least two years; or

(3)     it is otherwise considered appropriate by the Court.

In particular, this form of application is useful where your freeholder cannot be located or even identified. If your freeholder has effectively just given up on you and your building, in terms of its maintenance, repairing and other obligations under the lease, or never even began to comply with those obligations, this route is definitely one to consider for removing the landlord from the equation.

To apply for an Acquisition Order, the process specified in the Landlord and Tenant Act 1987 must be followed, and certain eligibility criteria must initially be satisfied, with at least two thirds of the flats at the premises let to qualifying tenants – this usually means them being leaseholders with a lease at the premises of over 21 years. The number of participants involved must also be equal to at least two thirds of the qualifying tenants and the application will require the support of neighbouring leaseholders. The whole, or any part, of the premises can be acquired, but in any event the building must have at least two flats which are let to qualifying tenants.

One advantage of this option is that premises qualify where there is more than 50% residential use at the building, compared to the position under the 1993 Act, where a building with less than 75% residential use cannot qualify. A second and financially beneficial advantage, relative to the 1993 Act, is in the calculation of the purchase price. If any leases at the building have an unexpired term of 80 years or less, then under the 1993 Act, an additional premium (called ‘Marriage Value’) is added to the value of the freehold. However, ‘Marriage Value’ does not apply in the case of  Acquisition Orders, which therefore reduces the amount payable to the landlord for the freehold. In addition, the freeholder’s costs may not be payable, especially if the freeholder is missing, and a discount to the purchase price may also be considered in some circumstances taking into account the costs of making the application. In contrast, under the 1993 Act, the freeholder’s costs are recovered from the leaseholders on completion of the purchase.

If you are faced with a difficult or absent freeholder, and you have support to acquire the freehold interest in your premises, Bolt Burdon is here to assist you. Our specialist team is experienced in Leasehold Enfranchisement and can advise you on your rights and eligibility for all applications including Lease Extensions, Collective Enfranchisements, Section 5 Offer Notices, Right to Manage and Acquisition Orders.  Please contact us on 020 7288 4700 or info@boltburdon.co.uk.

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