Block Management for Landlords
Lease extensions or collective purchase of the freehold
The Leasehold Reform Housing and Urban Development Act 1993 contains formal statutory processes for tenants to either:
- individually extend their lease; or
- collectively purchase the freehold of their block of flats.
If you receive a notice pursuant to this Act, it is important that you do not delay in dealing with it as failing to can have severe consequences.
When are leaseholders entitled to extend the lease?
Once your tenant has owned their leasehold property for at least two years they acquire the right to extend the lease for an additional term of 90 years and have the rent reduced to a peppercorn (meaning you no longer receive any ground rent). You will be entitled to receive a premium in return.
The premium to be paid is calculated according to a strict formula which includes:
- the value of the property;
- length of the current lease;
- the current ground rent;
- and will often be negotiated between the parties’ surveyors.
Although there is a legal procedure your tenants can follow to force you to grant a lease extension it might be worth considering whether you wish to proceed on an informal basis which might bring you more favourable terms and greater flexibility (such as retaining a ground rent). Remember though, if your tenant has not owned the property for two years this would be the only option available to them.
If you do receive a formal Notice of Claim (known as a Section 42 Notice) from your tenant, it is important that you engage solicitors as soon as possible. You must reply within two months with a formal “Counter Notice”. Failure to do so could result in your tenant being granted a new lease for a lower premium and on less favourable terms than you would otherwise expect to achieve.
Once you’ve served your Counter Notice, terms can either will be negotiated and agreed, or if no agreement is reached , the First-tier Tribunal (Property Chamber) will be asked to decide on the terms under which the lease extension can be granted.
An important note is that you will be entitled to recover your reasonable legal and surveyor’s costs in investigation of title, valuation and the conveyancing for which your tenant will be responsible under the Act so do not hesitate to seek our assistance to increase your chances of being properly reimbursed.
Collective Purchase and Enfranchisement
Your tenants may be entitled to purchase the freehold title to your building (and potentially surrounding land or buildings) provided that:
- there are at least two flats in the building, and
- at least two of the flats are let to ‘qualifying leaseholders’; and
- not more than 25% of the building is non-residential.
The number of leaseholders who join in on the purchase must represent at least 50% of the total number of flats in the building. They will usually begin the process by serving formal notice (known as a “Section 13 Notice”).
- identifying the premises which they wish to purchase,
- giving you details of the participants,
- nominating a purchaser for you to transfer the property to along with setting out their proposed purchase price.
As with a lease extension, you will have two months to respond with your Counter Notice and negotiations as to price and terms will then take place between the respective surveyors and solicitors. In the absence of agreement, the matter will be referred to a tribunal to determine the terms.
Again, you are able to recover your costs in respect of investigating their title, valuation and conveyancing so the use of specialist advisers is recommended.
If you would like to discuss any aspects of lease extensions please contact us.