Whether they are in purpose-built blocks, converted houses or located above the chic shops and cafes on the High Street, almost every flat on the market in Wimbledon Village is sold as leasehold.
As Robert Holmes & Co has previously highlighted, a leasehold interest is a diminishing asset. Here are two ways to maintain – or even increase – the value of your leasehold property…
Extend your lease
The Leasehold Reform, Housing and Urban Development Act 1993 states that if the leaseholder has been living in the property for more than two years and the original lease ran for a term of 21 years or more, they have the right to serve a Section 42 notice on the freeholder requesting the landlord’s terms for a lease extension by 90 years at a peppercorn rent.
The Act also states that if the owner of a leasehold property has already started the extension process before a sale is completed, purchasers can effectively inherit and continue that process.
Therefore, purchasers of properties with a lease approaching 80 years remaining are advised to request that the current owner initiates the lease extension procedure as a condition of the property sale, enabling the buyer to avoid the two-year delay and possibly incur further costs.
The 82-year mark is significant because once a lease has under 80 years remaining, it becomes more expensive to renew.
If the freeholder is willing to grant the leasehold extension request, the owner of the landlord will inform the leaseholder of the price they want to charge for the extension, the amount of ground rent payable and whether the extension will run for longer than 90 years.
Should the landlord fail to respond to a Section 42 Notice or submits their response later than the deadline set for the counter-notice, the leaseholder can apply to the County Court for a lease extension on the terms set out in the original notice within six months from the deadline for the return of a counter-notice.
A possible alternative to extending the lease on a flat in Wimbledon Village is for the current owners of properties in the development to get together and buy a share of the freehold.
Known as collective enfranchisement, this gives tenants of flats who act together the right to purchase the freehold and any headleases of their building.
In order for the block of flats to qualify, it must be an independent building or be a part of a structure that is capable of independent development.
The building must also contain two or more flats held by qualifying tenants and have at least two-thirds of the flats held by qualifying tenants.
Qualifying tenants must have been granted a lease of more than 21 years and not own three or more flats in the building.
Beware that if only the minimum 50% of owners in a block want to participate, then the cost to each leaseholder will effectively double compared with the cost of a plan that attracts participation from 100% of owners.
Another downside to owning the freehold is that repairs are up to the joint freehold owners to organise and pay for.
However, the advantages of owning a freehold property tend to outweigh the disadvantages. These include…
- Flats with a share of the freehold are usually more desirable than leasehold properties and tend to be worth more.
- Once the freehold has been acquired, full ownership of the building goes to the participating leaseholders, often via a company formed specifically for this purpose. Leaseholders can then select managing agents directly accountable to them or decide to self-manage. Either way, problems such as excessive insurance commissions or awarding contracts which may not give best value can be reduced.
It should be remembered that managing a building is a complex task with a host of laws and regulations to learn, ranging from asbestos to fire safety. For a leaseholder taking on the role of a company director, familiarity with the numerous duties and responsibilities this involves is essential.