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Lease Extension v Collective Enfranchisement

Just to clarify the terminology here, the reference to collective enfranchisement means the ability to purchase the freehold off your landlord.

I have recently read a comment by a specialist in enfranchisement and lease extensions who actively promotes the virtues of purchasing your freehold as against a lease extension :

“What many people do not realise is that the cost of acquiring a share of freehold is very similar to the cost of a 90 year lease extension, whereas the share of freehold adds more value, it is ultimately more acceptable to the market, and confers management control with potential for bringing down costs.   Unlike a lease extension it is not necessary to have owned the property for two years. ”

The additional benefits could also be added to the above:

  1. Owning a share of freehold makes the property more marketable as there is a psychological benefit of having a flat with a share of freehold.
  2. The freeholder sometimes reserves rights to develop the property for his own benefit.   Therefore owning the freehold sometimes gives the tenants control over the proposed modifications to the building.
  3. Ultimately you will be able to extend the Lease to 999 years for a nominal cost.

In my opinion, there is nothing inherently wrong with the above statement but it does paint a rather utopian picture of freehold ownership in the hands of tenants.
Very few commentators or experts talk about the downside of owning the freehold.   The success of owning a share of freehold dramatically depends on the chemistry of the leaseholders within the building.   Sometimes it is a blessing to have an independent landlord who can take action against your neighbours and enforce the provisions of the Lease.  

Fridaysmove have wide expertise in the field of leasehold property law and we often come across clients who have problems as a result of owning a share of freehold.   One such client is Jake Holloway who has instructed us in respect of service charge advice.   He has recently commented in an email to us :

“What people don’t realise is that owning your freehold as a limited company means that you have to run a Limited Company with all of the regulations that comes with that.   For example, you must submit proper accounts and complete an Annual Return to Companies House.   Plus everyone needs to be a Company Director (with all those responsibilities), you need a Company Secretary, you need to pass resolutions to make major decisions, etc. .   It is all very well if you happen to understand how these things work, but if you don’t you will need to pay an Accountant at the very least.

This is all before you get into the issues raised by now having full responsibility for the maintenance of the Freehold.   In our block of just 5 flats, we had a problem with Dry Rot which the insurers refused to cover – costing the Freeholder over £30, 000.   Unfortunately that Freeholder was us!”

My advice is always think twice about whether or not to proceed on the route of purchasing the freehold or extending the Lease.   Speak to your conveyancing adviser or one of our conveyancing experts at Fridays.   Every property is different and every client’s circumstances are different.   There are a number of important factors which depend on whether or not a lease extension makes more sense than purchasing the freehold.   Expert advice should always be sought in advance of making this  decision.

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