A Guide To Enfranchisement

The Leasehold Reform Act 1967 gives leasehold tenants of houses the right to buy the freehold. This is what our Property Litigation solicitors will be exploring in this article. The right to buy the freehold (and any intermediate leasehold interest, for example, the head lease) without the Landlord’s agreement is called ‘enfranchisement’. Some landlords will sell the freehold without you needing to make a formal claim.

The 1967 act has been amended and extended over the years, which has made the rules for calculating the price complicated. The latest amendments are set out in the Commonhold and Leasehold Reform Act 2002, which simplified the rules for qualifying for enfranchisement and gave leaseholders extra rights. 

The right allows the leaseholder to buy the freehold of the house and premises. Premises can include any garage, outhouse, garden, yard, and any items left to the leaseholder with the house. The premises must be let with the house, but this could be under a separate lease or deed.

The Landlord can ask for the premises to be included in the sale if keeping them would cause the landlord hardship or inconvenience. Alternatively, they can ask to keep certain premises if they have an interest, or it would cause hardship or inconvenience if sold.

The procedure is set out in the 1967 act and the Enfranchisement Regulations (the regulations). The procedure for houses does not follow the same clear timelines as when enfranchising flats or extending your lease.

You start the process by serving a tenant’s notice (in the prescribed form) on your Landlord, also referred to as a section 5 notice. Your Landlord is the person who has a tenancy of 30 years or more than you - this will usually be the freeholder. However, if there are any other landlords besides the freeholder, you should also serve a notice on them.

You do not have to include a proposed price in the notice, unlike when serving notice to extend your lease. By serving notice on the Landlord, you are effectively creating a statutory contract between you and the Landlord concerning the sale of the freehold. The contract is based on the conditions of sale set out in the regulations. The price must be agreed upon using the formula set out in the 1967 Act.

The formula set out in the 1967 Act provides two methods for valuing houses. These are referred to as:

• Section 9 (1) – where the house will be valued according to the original valuation basis, that is, the site’s value.
• Section 9 (1A), 9 (1C) – where the house will be valued according to the special valuation basis, i.e., the house’s value, including a share of the marriage value.

If your lease meets the initial low rent test, the house will be valued under section 9(1). If the lease does not meet section 9(1) criteria, it will be valued under the special valuation basis.

The leaseholder and Landlord cannot choose which valuation to use. It depends on the qualification criteria and can be complex. It is always advisable to instruct a surveyor to determine the premium payable.

If the Landlord admits the claim in the notice in reply, the procedure to follow is governed by the regulations, which set out the conditions of sale. These apply, along with the negotiations, when agreeing on the price.

Under regulations, the sale should complete at least four weeks after the price is agreed. Suppose the price cannot be agreed upon - in that case, the leaseholder can apply to the First-tier Tribunal (Property Chamber) or the Leasehold Valuation Tribunal in Wales for a decision on the premium payable. The tribunal may also deal with any disputes relating to the sale, such as the extent of the house or premises.

If the Landlord does not admit your claim (either in the notice in reply or by not serving a notice in reply), you will have to apply to the county court to buy the freehold.