Buying a 'long-leasehold' property but not long left on lease

#1
I'm looking to buy a couple of properties which are let on long leases which run out shortly.

I have read that the existing tenants or their estate (within 2 years of their death) have the right to buy Freehold or extend Lease?

The property is subject to a lease for a term of 99 years from 28th March 1936 (thus having approximately 22 years unexpired) at a ground rent of £4 per annum.
Current Rent Reserved £4 per annum
Reversion 2035



I understand that the property passes a ‘low rent test’ and that freehold valuation would be based on the value of the land – known as the original valuation basis.

How would I know how to calculate what to charge them if/they approached? Is there a forumla?

Thanks
 

Jeffrey Shaw

Member
Staff member
#2
1. Much depends on the type of property. Is it a house, a flat, or commercial premises?
2. You see, a house can be freehold or leasehold. The Leasehold Reform Act 1967 may apply. If it does, it will give the leaseholder (T) a right to enfranchise (= purchase the freehold reversion) or extend the lease (adding 50yrs. to its term).
3. But a flat is treated differently. The Leasehold Reform Housing and Urban Development Act 1993 may apply. If it does, it will give:
a. an individual right for T to extend the lease (adding 90yrs. to its term) ; and
b. a collective right for all the block's leaseholders- or at least 50% of them- to enfranchise collectively.
4. The rights in notes 2 and 3a presuppose leasehold ownership of at least two years; the rights in note 3b do not.
5. The rights in notes 2 and 3a are assignable at the same time as the lease is assigned/transferred.
6. For commercial premises, there are no such statutory rights at all.

So please post a bit more about the property/properties.
 
#3
Thanks for the quick reply.

It is a house.

So as a rule of thumb, what would be taken into account in relation to 'compensation' if the Leaseholder was to force the sale of the Freehold or the right to extend his lease?

The property is cheapish. £10k against a value with freehold vacant possession of about £80k, so I'm guessing it is pretty much stacked up in their favour.

I guess I was hoping for a windfall if the leaseholder decided not to take up their rights at any stage and was to pass away leaving the property vacant or a nice profit if they came along wanting to buy the freehold/extend lease at some stage.
 

Jeffrey Shaw

Member
Staff member
#4
Clearly, the £10 000 price is depressed due to the virtual unsaleablity of the existing leasehold estate.

The cost of enfranchisement is a valuation issue, and I'd suggest consulting a Chartered Surveyor.
If the figures look promising, you could offer to buy (@ £10 000) from the current leasehold vendor (V) SUBJECT to V:
a. serving Notice of Claim on the freehold reversioner (L);
b. including in the sale contract a clause obliging V to assign that Notice's benefit to you on completion; and
c. also completing in your favour a Deed of Assignment drawn accordingly.

After you complete the purchase from V, your solicitor will serve on L not only:
a. the usual Notice of Transfer (existing leasehold); but also
b. a Notice of Assignment (re the Notice of Claim).

V and L do not even need to agree an enfranchisement price, as long as L is bound to allow enfranchisement once terms are agreed.

If you'd like me to act, please contact me direct. This type of conveyancing is non-standard; your existing solicitors should have explained much of this to you but might or might not be up to its complexities.
 

Jeffrey Shaw

Member
Staff member
#5
Second thoughts:
My last post assumed that you want to buy the existing leasehold estate from V.
BUT are you in fact considering instead buying the freehold reversion from L?
 
#6
Second thoughts:
My last post assumed that you want to buy the existing leasehold estate from V.
BUT are you in fact considering instead buying the freehold reversion from L?
A company owns the Freehold at present and there is an old man (Leaseholder) living in the property. He doesn't have the means to purchase the Freehold, nor the interest but I'm guessing his family may try to do so when he dies.

I was hoping to come to some agreement with the old man that we 'forfeited' the lease and he and I jointly owned 50% of the Freehold of the house where he could live his final days/years with the peace of mind he would be leaving 50% to his relatives - he has no children. To do so I firstly need to buy the Freehold.
 

Jeffrey Shaw

Member
Staff member
#7
I see. You can of course try to buy the f/r anyway- but you have no statutory rights to do so (whereas T does, even if he's not intending to assert them).
So yes- you could negotiate a deal with him. However, ensure that each of you takes independent legal advice [different firms of solicitors], so that:
a. the transactions are structured properly; and
b. neither he nor his family can allege any undue influence by you. You know the saying: "Where there's a will, there's a relative"!