Leasehold enfranchisement involves a range of legal and valuation terms that can be unfamiliar to many leaseholders. Understanding a few commonly used expressions can make the process clearer.
Enfranchisement
Enfranchisement is the legal right for a leaseholder to purchase the freehold of their property. This can apply to a leasehold house or, in certain circumstances, to flats within a building. The Leaseholder Association have an in-depth guide surrounding enfranchisement.
Collective Enfranchisement
Collective enfranchisement allows qualifying leaseholders in a block of flats to join together to buy the freehold. A minimum number of leaseholders must participate for the claim to proceed.
Lease Extension Premium
The lease extension premium is the amount paid to the freeholder to extend the lease. It reflects the increase in value created by adding years to the lease and removing or reducing ground rent.
Marriage Value
Marriage value is the additional value created when a lease is extended or the freehold is acquired. It usually applies when a lease has less than 80 years remaining.
Notice of Claim
A notice of claim is the formal document served on the landlord to begin the enfranchisement or lease extension process. Many leaseholders choose to take advice from firms such as www.forsters.co.uk/ who are a London law firm before serving notice to ensure it is completed correctly.
Peppercorn Rent
A peppercorn rent refers to a ground rent with no meaningful financial value. It is commonly applied after a statutory lease extension, meaning no ongoing rent is effectively charged.
Understanding these key leasehold enfranchisement terms helps leaseholders make informed decisions.
Leasehold basics to check before you buy
These terms make more sense once the difference between leasehold and freehold is clear. Most houses in England and Wales are freehold, meaning you own the building and the land it stands on and are responsible for its upkeep. A leasehold property is usually a flat in a larger building. You own it for a fixed period under the terms of a lease, which may include shared areas such as entrances, lifts and communal gardens. Some houses are leasehold too, meaning the land is not yours.
A lease is a legal agreement with the freeholder, and when it ends ownership returns to them unless it is extended. A conveyancing solicitor should check the lease and explain your responsibilities, particularly any service or maintenance charges, before contracts are exchanged.
Mortgage lenders set a minimum remaining lease term they will lend against, and leases with 99 years or fewer left are likely to need extending. Leaseholders gain the right to an extension after two years of ownership, but it is often wise to agree one during the purchase.
Freeholder and leaseholder obligations
Before using any of these rights, it helps to be clear on what each party owns. A freeholder owns the whole property, the land it stands on and the airspace immediately above it. A leaseholder is granted a lease by the freeholder, usually for a flat or maisonette, for a fixed period that typically runs from 100 to 999 years.
The lease sets out each side’s obligations. The freeholder usually agrees to maintain the building and let leaseholders live there peaceably. The leaseholder typically pays ground rent and service charges and allows workers in to carry out planned work. A leaseholder who breaks the conditions of the lease can be taken to court and, in serious cases, could lose it.
When you buy a leasehold property, you take over the existing lease, so ask your conveyancer to check it carefully. The number of years remaining can affect a mortgage application, and you should know whether service charges are likely to rise.