What is Leasehold Enfranchisement?

What is Leasehold Enfranchisement?

Leasehold enfranchisement is the process you go through to either extend your lease, or purchase a share of the freehold (collective enfranchisement). When you buy a leasehold property, you enter a legal agreement with the landlord known as a lease.

Leasehold Enfranchisement is the statutory process by which qualifying tenants on long leases have the right to renew the term of their lease or acquire the freehold of their building.

When a leaseholder either extends their lease or purchases the freehold to their property, they receive an “enhanced interest” in the property. Therefore, they must pay a premium to the landlord to be able to benefit from this interest.

As the law currently stands, there are three elements to calculating the premium for leasehold enfranchisement:

Reversion – to compensate the landlord for the fact that they will not be able to take back possession of the property for another 90 years (in extension) or ever (in enfranchisement).

Term – To compensate the landlord for the lost ground rent to which they would have been entitled if the lease ran for the full term at the current rates payable.

Marriage Value or Hope Value – extensions of leases under 80 years will attract Marriage Value or Hope Value. Marriage Value is based on the assumption that the freehold interest and leasehold interest in a property are worth more together than their respective parts. The difference between the value in single ownership and the value in separate ownership is the Marriage Value. Hope Value is a deferred form of Marriage Value. It is based on the “hope” that if the freeholder sold the freehold in the future, the third party might realise the Marriage Value, and is a lower monetary value than Marriage Value.

What is a collective enfranchisement?

Collective enfranchisement is the process by which the leaseholders in a building join together and buy the freehold. This right to do so comes under the Leasehold Reform Housing & Urban Development Act 1993.

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