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Is it a good time to extend my lease or collectively enfranchise (Buy my freehold with my neighbours)?

Property / 18 August 2020

The Law Commission published its report on 21 July 2020 on leasehold reform setting out various issues that they considered were necessary to tackle issues and problems that leaseholders currently face.

These included changes to the processes of obtaining a lease extension or collectively buying the freehold (enfranchisement) or the right to manage; making these avenues cheaper and simpler.   It also proposed changes to the currently little-used commonhold system, to make it more attractive and easier to implement, so that gradually, the need for leaseholds would be diminished or extinguished altogether.

The recommendations obviously made leaseholders wonder if they should wait for these reforms to be enacted, rather than to seek lease extensions or enfranchisement now.

There are a number of considerations to take into account before you decide to wait for something that may never happen, or if it does, it is not as you had hoped.

—  Legislation is not quick.   It could take years for the recommendations to become law, and the final version may not be what you expected or hoped.   There is therefore, no guarantee that your lease extension or enfranchisement price will be cheap or cheaper than what it might be today;

—  Those who can afford to wait are in no better or worse position.    However, if your lease has less than 80 years to run, or is hovering around the 80-year mark, then waiting for possibly another 2 or 3 years will increase your lease extension premium substantially if the reforms do not change the basis of valuation as recommended;

—  If you are thinking of selling your flat in the near future, then a longer lease is going to be more marketable than a short one.  Many mortgage lenders will not lend on leases with less than a minimum term left to run and so you may find yourself having to agree to a substantial discount on your sale price to take into account the length of the lease;

—  If you are dissatisfied with your current freeholder, possibly due to bad or lack of management, waiting for leasehold reform is not necessarily going to make your dissatisfaction disappear.    Now is actually an opportune time to enfranchise as market values have fallen due to the pandemic.    Thus, you may find that the price for the freehold is lower than you had expected;

—  Similarly, the price payable for a lease extension is partially based on market value, and so these too have been depressed due to the global economic downturn.    The valuation of your lease extension is fixed as at the date of your lease extension (Section 42) notice, and so if you serve one during a low point in the market, you will not be affected if prices increase;

—  The prospect of the leasehold reform measures has initiated some freeholders to sell their freeholds now.   You may have received a “Section 5” notice under the Landlord and Tenant Act 1987.  Whilst this is not subject to the enfranchisement regime, it could be a good alternative to gain control of the freehold ie of your building, and this is less contentious as the freeholder wants to sell.

Therefore, it could be a good time for you to extend your lease or buy your freehold.   Certainly, if you already have a short lease, it could be very risky to wait even longer for legislation to be enacted.

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