What does it mean?
It is the right that the flat owners of a block of flats have to buy their freehold(whether or not the freehold owner wants to sell or not..)
When is it the right time to Enfranchise?
Legal rights are available for tenants of Houses and Flat Owners of flats in blocks of flats and converted houses holding on long lease (such as one which was originally for 99 years (even though a number of years have elapsed)) to acquire their freehold. In the case of flat owners they have to act collectively but not everyone has to take part. Certain qualification rules apply.
The relevant case law is constantly evolving sometimes in favour of the landlord and vice versa. So is it a good time to exercise your right? Here are a few issues to consider?
- Hope value - This is only relevant to flat owners – Hope Value is the income a freeholder expects to receive from flat owners seeking to extend their leases in future. As you may be aware the Court of Appeal in a case decided late last year decided that “Hope Value” isn’t payable in respect of flats which don’t take part in the enfranchisement procedure. Leave to appeal that decision has been granted and it is expected that the appeal will be lodged and ultimately heard by the House of Lords. If that appeal is successful then Hope Value will again become payable so you might want to take your chance and Enfranchise at this stage paying the premium based on a no hope value calculation. So for example if there are 10 flats in a block with lease terms remaining of 30 years and only half of them participate in the process then no element of marriage value for the 5 that do not participate will be payable and the overall price payable will be reduced. So if you go ahead now the landlord has no hope!
- Deferment rate – as you may know deferment rates have been fixed for houses at 4.75% and flats at 5% in the above case. Again, this is open to being appealed perhaps by one of the estate landlords in which case should they be successful in achieving say a deferment rate of 4% for flats then this would increase significantly the premium payable to your landlord for a new lease.
- Once the remaining term of your lease (or those of participants) drops below 80 years then Marriage Value becomes payable which greatly increases the premium payable. This element of the premium will increase as the remaining term of your lease gets shorter. The effect on the premium differs depending on whether you are just under the 80 year mark or sailing close to the final few years of the term.
- Starting the statutory procedure fixes the valuation date by reference to which the premium will ultimately be calculated. So if the market recovers subsequently then the comparables used to calculate the price of the lease extension will be lower than they would have been later (and vica versa).
While no-one knows where the property market is going to go without a decent crystal ball you may wonder how much it needs to fall by to leave you paying broadly the same premium in, say a year as in the event you started the statutory procedure now. A specialist valuer would need to advise you on this.
If you are planning to sell your flat in future and have decided to sit the market out until it hopefully recovers you might want to take this opportunity to improve the value of your asset and its marketability down the line by Enfranchising at this stage as it the statutory process often takes between 6 and 12 months to conclude.
