Property: The secret of getting a longer lease without going to war

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Indy Lifestyle Online
Tenants can now buy freeholds and extend leases, provided they have patience as well as cash. But it is not a simple process. A generation ago many properties fell into disrepair because tenants could not buy short leases and landlords were unwilling to spend money on essential maintenance.

England's archaic leasehold law was reformed in 1993. Then the new law itself needed to be reformed. And still, Robert Liebman says, more tinkering may be needed.

Short leases have received a new lease on life thanks to the Leasehold Reform, Housing and Urban Development Act of 1993 and later amendments which allow many tenants to extend their leases by 90 years. Alternatively, qualifying tenants can communally buy their freehold outright.

But these rights come neither cheaply nor easily. Tenants must compensate landlords for lost value, and also pay the landlord's as well as their own legal and professional bills.

Cheap it isn't, but tenants obtain properties which are more valuable and more sellable. Their costs are also commensurate with the increased value that they enjoy.

Although a tenant cannot be forced either to seek enfranchisement or a lease extension, no flat-owner or flat-buyer should be indifferent to the workings of this law. Even a tenant perfectly content with his lot and his lease can suddenly find himself in a war zone. Complete insulation against a war between neighbours and landlord is not always feasible.

Especially concerning lease extensions, many landlords and tenants come to terms quickly and amicably. Occasionally, they agree to their own variation on the basic law - a lease extended for more than 90 years, for example, but with a substantial rather than a peppercorn (nominal) ground rent.

But some landlords resent the new law and resist it strenuously. Instead of good-faith negotiations and compromise, disagreement abounds. The Leasehold Valuation Tribunal, which cannot award costs, is excellent at concentrating minds, and many bitter disputes are suddenly resolved at the last minute. Some disputes go the brutal distance, to the dreaded Lands Tribunal.

Landlords fight their corner with all of the privileges the law allows, which are many. Hapless tenants can pay well over the odds in more ways than one.

Four elderly tenants in Sussex had very long leases but also a landlord who imposed steep service charges and otherwise made their lives miserable. They won their enfranchisement case but the landlord appealed and then went bust. Their costs, no longer recoverable, totalled some pounds 20,000.

In a lease extension case in Harrow, north-west London, two couples had virtually identical flats each with 41-year leases and each with essentially the same values. The landlord appealed to the Lands Tribunal and, fearful of additional costs, one of the couples no longer argued their case. The other couple actively fought on and, despite their similar positions, ended up paying many thousands more than the couple who withdrew.

The stakes in central London can be even higher. "London is owned by half a dozen big landlords," says Simon Marr-Johnson, a chartered surveyor with the London firm of Marr-Johnson & Stevens. "In addition, to flats, offices and shops, it owns large areas of leasehold houses, particularly in Belgravia and South Kensington."

In the eyes of the law, a house is not always a house. A 1996 Belgravia case involved two adjacent mews cottages, each with a garage on a separate short lease so located in the premises that each property could legally constitute not a "house" but a "flat".

"The owners sought lease extensions as a block of two flats," says Joan South of the Leasehold Enfranchisement Association. After a two-day hearing that stretched to five days, the price was settled but tenants had to pay costs greater than pounds 40,000. "The tenants foot the bill so the landlords hire the top QCs." The steep fees then deter other tenants from seeking enfranchisements.

Laymen can forgive themselves for feeling baffled by an area of law so complex and quirky as to baffle more than a few solicitors.

To enfranchise a property itself along with a certain proportion of tenants must qualify. Enfranchisement is not allowed in a conversion of four or fewer flats, in one of which the freeholder or an adult family member has been living for the past year. However, tenants in such properties can extend their leases.

Weigh domestic realities against legal rights, Mrs South cautions. "If only two of three occupier-owners in a conversion agree to enfranchise, the two become the landlord over the third. If the third then applies for a lease extension, they can make life hell for him by delaying." The situation is certainly ripe for conflict.

Some costs may be hidden. "The costs depend on the number of interests. There will be one freeholder, but there may be various intermediate leases, and the tenant would have to serve notices on all interests," says Richard Berns, senior partner with Piper Smith & Basham, a London firm of solicitors.

And once you are in, you cannot simply drop out and wash your hands of the matter. Tenants must still pay the fees incurred by the landlord to that point.

Fortunately, traumatic outcomes are relatively rare, and tenants can benefit, for example, from transferable residency qualifications. "Instead of waiting three years, the seller can serve a notice on the landlord and get it assigned to you," Mr Berns says.

Costs are pretty much in line with property values, whether that property be in Brixton or Belgravia. Information about the other occupiers and the landlord of a premises is self-evidently vital. And, as always, attention must be paid to location.

Mr Marr-Johnson encounters "reputable as well as pugnacious landlords in central London, but also some unscrupulous landlords who have been buying freehold blocks in the suburbs, behaving harshly towards the lessees and hence forcing up the cost of the freehold to them".

Mrs Joan Smith, Leasehold Enfranchisement Association, 10 Upper Phillimore Gardens, London W8 7HB; Marr-Johnson & Stevens, 15 Bolton Street, London W1Y 7PA. 0171 499 3199; Piper Smith & Basham, 31 Warwick Square, London SW1V 2AF. 0171 828 8685.

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