If you’re a leaseholder with a shortening lease or a high ground rent, you might be considering your options for resolving the issue.
You have two (key) rights provided by the Leasehold Reform Housing and Urban Development Act 1993 and both can leave you with a long lease and no ground rent to pay. This article explains the pros and cons of both in detail.
The first is to purchase the freehold of your building along with your neighbours, which is a process called Collective Enfranchisement. Once you’ve purchased the freehold, you can also extend your lease. We don’t currently offer this service but check out The Freehold Collective.
The second is simply to extend the lease – which is usually a simpler and cheaper process and takes less co-ordination.
The first is to do a Statutory Lease Extension, which will also remove the ground rent. We offer a fixed-fee service for lease extensions.
Decided a lease extension is the choice for you?
Advantages and disadvantages of purchasing the Freehold
Purchasing the freehold of your building – or Collectively Enfranchising – is a fantastic idea in theory.
It’s worth noting that a freehold purchase isn’t available to all buildings. Some buildings aren’t eligible: exclusions include some buildings owned by housing associations or councils, or where a proportion of the building is commercial property or hasn’t been let on long leaseholds.
However, if you are eligible to purchase the freehold to your block and it works well for you, it really does work beautifully.
For example, I used to own a first floor flat in a building with just one other flat. Between us we purchased the freehold. Once we had, we extended the leases on both flats. There was no need to pay ground rent and our maintenance and insurance charges reduced as well.
But freehold ownership it is not without its pitfalls.
Buying your freehold. The pros:
- Better Maintenance Decisions: Instead of having maintenance costs (e.g. a new roof) imposed on you by an external party, you can work with your neighbours to choose when the work is done and the best provider to use.
- Lower Insurance Costs: Having purchased the freehold, the insurance costs will likely go down too – not least because you can shop around for the very best price.
- True Ownership: You will feel not only like you own your flat, but that you have a real stake in your building.
- A long lease: once you’ve bought the freehold, you’ll be able to extend your lease.
- A (slightly) more valuable flat: Usually flats which come with a share of freehold are worth marginally more than those which are not.
Buying your freehold. The cons:
- You’ll need to get your neighbours involved: if you live in a block of flats, you’ll need to organise to buy your freehold together with your neighbours. You need to get half of them on board and this can be a delicate and time-consuming process to co-ordinate everybody.
- No Building Safety Act Protection: If you qualify under the Building Safety Act 2022 for protection against building defects you’ll lose it if you collectively enfranchise.
- You’ll have to pay for those who don’t take part: Some of your neighbours won’t want to take part. You’ll need to essentially pay for their share of the freehold, hoping that you’ll get paid back in the future when they extend their lease.
- You will have to work out how to split the bill: Usually when you do a freehold purchase not everyone will need to contribute evenly. For example, we had one case where one leaseholder had a short lease and had to pay about £16,000 for the lease extension. The other had already extended their lease and had no ground rent, so their share of the premium paid to the freeholder was only about £50.
- It can be more contentious: With a freehold purchase you’re taking the freeholder’s building off them. Often, they’ll use this as a last opportunity to squeeze money out of you – we’ve had several freeholders unrealistically argue that the building has development potential, to drive the cost up.
- You replace a dictatorship but have to live in a democracy: Ousting your freeholder is probably a good idea – but you’ll still have to live in a democracy. You’ll need to work together with your neighbours on key decisions (including when to spend money!) and this isn’t always easy.
- Estate Management Charges: sometimes even after you’ve bought your freehold, you still have to pay “estate management charges”. This is usually only applied to flats on new build estates.
Advantages and disadvantages of extending your lease
Extending your lease means you won’t change the fundamental arrangement that you are a long-term tenant in your property. That said, it's much simpler and by extending your lease you will see some big improvements to your situation.
Lease extension. The pros:
- Increase in property value: whatever your flat is currently worth, it will be worth more when you have a lease extension
- A long extension: You have a right to extend your lease by an additional 90 years
- No ground rent: your ground rent will be reduced to zero
- You can act alone: No working with neighbours to buy your freehold
- It’s cheaper: it is marginally cheaper to extend your lease than buy your freehold
- You don’t have to manage the building: You don’t have to work with your neighbours to manage the building
- A freehold purchase will be cheaper in the future: If you extend your lease now, your share of a freehold purchase will be much cheaper in the future.
Lease extension. The cons:
- Still Leasehold: your home is still a leasehold property
- You still have a freeholder: you’ll still have to pay any management charges, permission charges and insurance charges outlined in your original lease
- Your restrictions will remain: you’ll still have to stick to any of the restrictive rules in your lease
Either way, extending your lease or buying your freehold puts you in a much stronger position than living in a property with a dwindling lease. Talk to us about how our lease extension specialists can help you.