Leasehold enfranchisement – the perils and pitfalls for the unsuspecting solicitor

Since the Leasehold Reform Act 1967 came into force fifty years ago, long leaseholders of a house have had a right to purchase the freehold, or an extension of their existing lease, provide certain conditions are met. Twenty-five years ago these rights were extended to long leaseholders of flats by the Leasehold Reform, Housing and Urban Development Act 1993. By enabling leaseholders to extend their leases or purchase their freeholds, these rights to “enfranchise” provide a mechanism by which leaseholders can preserve or even increase the value of their properties.

The statutory procedures for bringing any one of these forms of claim appear straightforward. In general terms each form of claim is started by the leaseholder serving a notice of claim which, where flats are concerned, must state the leaseholder’s proposed premium and other terms. The freeholder must then serve a counter-notice indicating whether it accepts that the leaseholder has the right claimed and - where flats are concerned - whether the proposed terms are accepted. If the freeholder accepts the claim but the parties cannot agree terms, either can apply to the First Tier Tribunal to determine such terms. If the leaseholder’s claim is disputed altogether, an application to the court for a declaration as to their entitlement will be required.

While these procedures are formulaic and, on their face, hardly complicated, they are less innocuous than they first appear. Each stage of the process outlined above involves a strict time limit and there are also requirements as to the content of various notices and counter-notices, which, if not met, can be fatal to a claim.

In the case of a claim for a lease extension, a simple failure to apply to the Tribunal in time will bring the claim to an end, leaving a leaseholder with nothing but a significant liability for its own and its opponent’s costs, and a year’s wait until it can serve a fresh notice (by which time the premium for an extension will likely have increased, perhaps significantly). The loss can be even greater if, for example, the leaseholder had intended to sell the property once the extension had completed, but now finds itself unable to do so (perhaps because there are too few years left on the lease for the property to be mortgageable), or does proceed to sell but achieves a significantly lower price than if the lease had been extended.

To address some of the above issues, the Department for Communities and Local Government has recently announced that action will be taken to ensure that the processes under the 1967 Act and 1993 Act are simplified. We wait to see how they propose to achieve this. In the meantime, we continue to see a steady flow of claims arising from solicitors’ errors or omissions, particularly where the solicitor in question has limited or no previous experience of dealing with enfranchisement matters. We have also, on occasion, come across solicitors straying into the role of valuer with dire consequences.

Conclusion

Despite appearances, leasehold enfranchisement is a complex area of law and, as such, it is always advisable for a leaseholder or landlord/freeholder to seek assistance from a solicitor who specialises in this area of law (and, separately, advice from a valuer with expertise in this field). The potential cost of any slip-ups can be considerable and - for as long as property prices continue to rise across the country, particularly in the capital - will only increase.

From an insurers’ perspective, while simple mistakes can be made by even the most diligent, the concern is where a law firm acts on enfranchisement matters without the right level of expertise. In that event, the risks are high and so any changes to the legislation will be a welcome development.