Under the Leasehold Reform Act 1967 (LRA 1967), the long leaseholder of a “long lease” of a house has the right to purchase the freehold of the house subject to satisfying certain qualifying criteria which will be considered in this article.
This note is concerned only with the rights arising under the LRA 1967, specifically where the freeholder is unknown.
Where the long leaseholder (also known as the tenant) of a house wants to buy the freehold, there are two initial points to consider:
- Does the long leaseholder qualify for the statutory right to buy the freehold pursuant to the LRA 1967?
- If the long leaseholder does qualify, how much is the freehold likely to cost?
Qualifying for the right to buy
For the right to buy the freehold to arise, each of the following conditions must be satisfied:
- The long leaseholder’s lease must be of a house.
- The lease must be a long tenancy, typically defined as a lease granted for a term of more than 21 years.
- There must be no under long leaseholder who has rights under the LRA 1967.
- Where the lease is an excluded tenancy the rent payable must be a low rent.
- The long leaseholder must have been the long leaseholder of the house under a long lease for at least the two years immediately preceding.
- In certain limited circumstances, the long leaseholder must satisfy a residence test.
- The lease must not fall within one of the exclusions (listed below).
Certain leases are excluded from the right to buy the freehold. The main exclusions consist of:
- most shared ownership leases
- leases where the letting of the house is ancillary to the letting of other land and premises
- leases of an agricultural holding.
- leases granted by a charitable housing trust for the purposes of its charitable functions.
- Certain leases where the landlord is a local authority or other public body, and the land is needed for development.
Why would a long leaseholder want to exercise the right to buy the freehold?
A lease with less than 70 years remaining is generally considered unmortgageable due to the diminishing value of the leasehold title in the property. Further, a mortgage provider would not be satisfied with the security offered by the remaining term on the leasehold title and as a result are unlikely to approve any mortgage applications for the property. Where the freeholder is unknown, the long leaseholder may feel like they are unable to extend their lease or offer to buy the freehold.
Therefore, a long leaseholder is faced with the quandary of a property that is diminishing in value coupled with the property being highly unlikely to release any equity in the property through a re-mortgage and in the event of any potential sale of the property, the leaseholder would be restricted to the cash-only market.
The right to buy the freehold, if successful, provides the leaseholder with the security of knowing that they are the owners of the freehold title of the property rather than a short lease and mortgage providers are more likely to provide funding if the freehold of the property is put up as security.
Right to buy the freehold
The long leaseholder is able to use the mechanisms provided by sections 20 and 27 of the LRA 1967 to apply to the court for a vesting order that determines that the long leaseholder is entitled to acquire the freehold of the property in question.
Where section 27 of LRA 1967 applies, the long leaseholder must apply to the County Court for an order vesting the house in them.
The application has effect as if it were a notice of claim to acquire the freehold, even if the freeholder is subsequently identified.
The application must be accompanied by a witness statement from the applicant demonstrating that they satisfy the qualifying criteria to make the claim.
As long as the court is satisfied that the long leaseholder is eligible to buy the freehold, it has jurisdiction to make an order on such terms as it thinks fit. Before granting the order, the court will issue directions, which may require the long leaseholder to take further steps to try to trace the landlord and seek a determination from the Land Tribunal of the value of the freehold.
How can Talbots Law help?
Our Property Litigation and Dispute Resolution team have extensive experience dealing with enfranchisement, so please do not hesitate to get in touch with one of our Property Litigation Specialists who will be happy to assist.
Call our team on 0800 118 1500 or email [email protected]
Disclaimer
The contents of this blog or any other published by Talbots law cannot be considered as legal advice and should therefore not be acted on without prior consultation with a qualified solicitor or legal professional.
