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Jargon Buster

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Following is a jargon buster of leasehold enfranchisement and lease extensions.

The law of leasehold enfranchisement has come to assume major importance as an area of law which affects many residential properties.  Some knowledge of leasehold law is essential for those who deal and live in residential property let on long leases.

In this Jargon Buster, Yashmin Mistry, Solicitor in the Leasehold Enfranchisement Department of Brethertons LLP (www.brethertons.co.uk) explains some key terms used in leasehold legislation in plain-English.

 

TERM
MEANING
LEASEHOLD REFORM, HOUSING AND URBAN DEVELOPMENT ACT 1993Received Royal Assent on 20th July 1993.  It is the radical piece of legislation that introduced the right for leaseholders to extend their leases and the right for leaseholders to purchase the freeholds of their buildings (‘collective enfranchisement’).
COMMONHOLD AND LEASEHOLD REFORM ACT 2002

The Leasehold Reform, Housing and Urban Development Act 1993 has been subject to amendment since its introduction. The most significant changes were contained in the Housing Act 1996 and the Commonhold and Leasehold Reform Act 2002.
COLLECTIVE ENFRANCHISEMENT
The right of a group of 50% or more of leaseholders in a particular block of flats to buy the freehold of the building from their landlord. The right is a group right, as opposed to say, an individual’s right to have a lease extended.
RELEVANT PREMISESThe Building, the freehold of which is to be acquired.
QUALIFYING TENANTA leaseholder who fulfils the qualifying criteria i.e. a leaseholder of a flat under a long lease and does not own three of  more flats in the building.
PARTICIPATING TENANTA Qualifying Tenant who participates in the collective enfranchisement process.
R.T.E
A Right to Enfranchise Company.  The Commonhold and Leasehold Reform Act 2002 states that a claim for a right to collective enfranchisement can only be made through a RTE.  These provisions relating to RTEs have been highly criticised and have yet to come into force.
NOMINEE PURCHASER
Person(s) or entity named in the initial notice who will acquire the freehold and become the new landlord of the building (this will be the RTE when and if those provisions come into force).
INITIAL NOTICE
Notice informing the Landlord of the leaseholder’s claim for the purchase of the freehold. This notice must contain certain  prescribed information as set out by legislation.  Service of the initial notice formally commences the enfranchisement process.
RELEVANT DATE
This is the date the Initial Notice is served.  It is also the valuation date i.e. the date at which the valuation is made for the purpose of calculating the price to be paid for the freehold.
MARRIAGE VALUE
Is the extra value brought about by the freehold and leasehold interests being under the same control, merged or “married” i.e. the ability of participating tenants to grant themselves long leases at no premium.  These interests are often worth more together than apart.
HOPE VALUE
It is presumed the only person who will ever want to bring the freehold and leasehold interests together is the leaseholder. The leaseholder is therefore usually willing to offer a higher price than others may do and hope value is that “overbid” i.e. the additional payment that the leaseholder would make in order to ensure that they, and no-one else, would get the freehold.

COUNTER NOTICE
The landlord’s response to the initial notice served by the participating leaseholders.
LEASEBACK
The right of the freeholder to a lease-back of certain parts of the premises on completion of the purchase of the freehold by the participating tenants.  In some cases the leaseback is mandatory; in other the leaseback is optional.
SPORTELLI CASE
Earl Cadogan and Cadogan Estates Ltd v Sportelli and others - the case that rocked the Leasehold Valuation Markets! The case went from the Leasehold Valuation Tribunal all the way up to the House of Lords!  On 10th December 2008 the House of Lords gave judgment in this group of appeals and held:
•    “Hope Value” exists in the real market although hope value is not the same as marriage value;

•    Where marriage value is payable, hope value is not;

On these principles, in their Judgment the Lords held:

•    That “hope value” was not be to included in valuations for houses under Section 9(1) and Section 9(1A) of the 1967 Act;

•    That “hope value” is not payable in valuations for lease extension under the 1993 Act as the tenant pays marriage value; although

•    In applications for collective enfranchisement claims under 1993 Act, hope value is payable and should be taken into consideration but only insofar as non-participating tenants are concerned.  

 

 


 


 

 
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