UK: Buying The Freehold Of Your House (Leasehold Reform Act 1967)

The right to buy the freehold of a house is now available to almost any leaseholder who has owned it for at least 2 years.

This includes corporate and non-resident leaseholders. There is no longer any question of having to have lived in the house for any period.

Is enfranchisement possible?

If you are proposing to buy a leasehold house (or if you already own one) you will want to know for certain whether enfranchisement is possible.

There are 3 factors to take into account:

  • the Lease must have originally been granted for a term of over 21 years
  • the house itself must not be disqualified for any reason under the Act (eg because it overlaps adjoining premises or is on Crown land)
  • you will need to have owned the house for at least 2 years (alternatively if you are considering buying, your seller may be willing to pass the benefit of a claim to you if they qualify)

If you already own the house in question, all we need you to do is complete a questionnaire and either forward the Lease and other title deeds to us or write to the firm/institution holding them asking it to forward them to us. We will confirm whether you satisfy the qualification criteria laid down by the Act on the basis of the information provided in your completed questionnaire and having checked the Lease provisions, rateable values (where applicable) etc

If you are thinking of buying a house and want to know whether it can be enfranchised, we can contact the seller's solicitors and clarify the position. We can also check whether the seller qualifies and would be prepared to make a claim so that you can take the benefit of it following completion of your purchase. This saves having to wait for at least 2 years until you can satisfy the ownership condition yourself. This may have a beneficial effect on valuation and therefore the premium you will pay for the freehold.

Claim

We serve a Notice of Claim on the landlord and any other interested parties (or, where the claim is being made by the seller on your behalf, the seller's solicitors will do so on or before exchange of contracts for the purchase).

Once Notice has been given and the claim is accepted as valid, the landlord is bound to convey the freehold to you and you are bound to accept it unless you withdraw at a later stage (see below). We register a 'Notice' to protect the claim and prevent any other dealings by the landlord.

At any time after service of Notice of Claim the landlord may:

  • require a deposit (of up to 3 times the annual ground rent) to be paid within 14 days
  • ask us to produce evidence of your title to the Lease (within 21 days). This involves sending copies of all relevant documentation to the landlord's solicitors within this time-limit, so we need to have your title deeds before service of the Notice of Claim in order to be in a position to deal with this promptly.

Landlord's Counter-Notice

The landlord must serve a Notice in Reply ('Landlord's Notice') within 2 months of the service of your Notice of Claim. In the Landlord's Notice the landlord will either admit or contest your right to enfranchise. In the unlikely event that your claim is contested, any dispute is ultimately referable to the County Court within 2 months from the date of service of the Landlord's Notice.

Conveyancing steps

Once the Landlord's Notice has been received (or in any event once 2 months have elapsed since service of your Notice of Claim), we call upon the landlord to produce evidence of its title to the freehold within 4 weeks.

We check the landlord's title and make any necessary enquiries within 14 days to which the landlord must reply within a further 14 days.

Notices may be served by either the landlord or you at this stage giving details of any rights or covenants to be included in the Transfer of the freehold. In practice these strict notice procedures are generally dispensed with and the form of Transfer is agreed while the valuation negotiations are in progress.

Agreeing the price

Once your right to bring your claim is admitted/established and while the form of Transfer is agreed, your valuer and the landlord's valuer negotiate the price to be paid by you for the freehold.

The landlord's share of the 'marriage value' (ie the added value arising from the 'marriage' of the freehold and lease interests) is now fixed at 50% by law. However, where the Lease has over 80 years left to run, you will keep all the marriage value: the landlord's share will be nil.

If the price, or, in exceptional cases, the terms of the Transfer cannot be agreed, the dispute may be referred by either you or the landlord to a Leasehold Valuation Tribunal ('LVT') in which case you will incur substantial further costs. The vast majority of cases are settled without the need to resort to the LVT.

The 'valuation date' is fixed at the date you serve your Notice of Claim. It is therefore in the interests of your freeholder to 'force the pace' by applying to the LVT and this is generally what happens. The application effectively sets a deadline by which voluntary negotiations must be concluded.

Completion

Once the purchase price has been agreed (or determined by the LVT), you have 1 month in which to withdraw if you do not like the price. You will then face the various abortive costs for which you are liable. After that month has elapsed you are bound to proceed. Either you or the landlord may then serve a notice requiring completion within 4 weeks. The agreed Transfer is then produced by the landlord's solicitors for execution in readiness for completion.

If your Lease is subject to a mortgage, you will need either to sign a fresh mortgage deed or a separate deed substituting the freehold as security in place of the Lease. That involves some modest extra costs but should never cause any problem because the mortgage-lender's security is being improved.

On completion, the purchase price is paid and any apportionment of rent is made and any mortgages of the landlord's freehold interest are discharged.

Post-completion

If applicable, stamp duty land tax at the following rate is payable within 1 month of completion:

£0 - £125,000 nil
£125,000+ - £250,000 1% on the whole of the price
£250,000+ - £500,000 3% on the whole of the price
£500,000+ - £1m 4% on the whole of the price
£1m+ 5% on the whole of the price

We then make an application to the Land Registry for your registration as owner of the freehold and for the cancellation of any existing charge over the freehold interest. Application is also made for closure of the old lease title, and, again where applicable, the registration of a new mortgage (or the existing mortgage where a 'Deed of Substituted Security' has been completed) against the freehold. The 'Notice' protecting your right to enfranchise is also cancelled.

Landlord's costs

As well as being responsible for your own costs, you will have to pay the landlord's reasonable legal and valuation (but not negotiation) costs and not the landlord's costs for the LVT hearing. These costs should be agreed as part of the price negotiation.

Withdrawal

As mentioned above, at any time up to one month after the purchase price has been agreed or determined by the LVT, you may give the landlord written notice that you are unable or unwilling to proceed. You remain liable for the landlord's costs (see above) and the Notice to Withdraw will have the effect of preventing you (or a purchaser) from giving another Notice of Claim to enfranchise for a further year.

Timeframe

You should assume that it is likely to take between 6 and 12 months from the time when you make your claim to completion of the freehold purchase.

Conclusion

If you wish to buy the freehold of your house or if you are buying a leasehold house, we would be happy to advise on all
aspects of the matter and to give an estimate of the likely costs.

Experience shows that the vast majority of claims proceed in a straightforward manner, if the solicitors and the valuers
work as an effective team.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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