First lease law test: Tribunal cases focus on the extension of leaseholders' rights

THE FIRST cases brought under the new legislation that gives leaseholders the right to buy their freehold or extend their leases should be heard by the summer.

The Leasehold Valuation Tribunal has received valid applications for a hearing from one group of tenants for collective enfranchisement, and three individuals seeking lease extensions. The cases - brought under the Leasehold Reform Housing and Development Act, which came into force last November - are likely to be heard in July.

The case for buying the lease has been brought by two flat-owners, who live in a house in Primrose Hill, north London, that has been divided into two flats. The case - against a private landlord - turns on differing valuations.

The cases for lease extension concern flats in Eton Avenue, Swiss Cottage; Parkhurst Road, in north London; and Kingsway Road, in Cheam, Surrey.

Stephanie Black has lived in her large one-bedroom flat in Swiss Cottage for nearly 10 years. The lease, from Eton College, has 43 years to run and she is concerned that her investment is losing its value. She began trying to negotiate an extension of the lease in 1991 but could not agree a price.

'I put the flat on the market with a lease extension for pounds 85,000. Twenty-seven people came to look, but there wasn't a single offer. Eton College is asking pounds 27,500 for the 90-year extension. I believe the Act was brought in to help leaseholders. If the tribunal went with the figure from Eton College, it would put me in negative equity.'

David Haines, a surveyor at Langley Taylor, which acts for Eton College Estates, said: 'If people want to buy the freeholds, I don't think they are going to be obstructive as long as people comply with the terms of the Act.'

He added that valuations not only involved valuing the extended lease but also the reversionary interest - the value to the freeholder of the lease eventually ending.

In cases of leasehold enfranchisement, the main consideration is establishing the marriage value - the extra value gained from bringing the freehold and leasehold interests together - and apportioning it.

Miss Black, who runs Bagette, a costume jewellery shop in west London is not employing specialists, although surveyor friends are helping her.

She has found the free Leasehold Enfranchisement Advisory Service (Leas) run by the Department of the Environment very helpful.

Leas has received 2,000 inquiries already, and they are are still coming in at 70 or 80 a week. Most inquiries come from London and the South, but requests for more information have also come from Bournemouth, Brighton, Bristol and Birmingham. A spokesman said: 'Price is always the predominant question.'

There are over one million flat-owners who stand to gain from the Act, which gives individuals the right to extend their lease by 90 years - so a 30-year lease can become a 120-year lease. It also allows collective enfranchisement of leases, where at least two-thirds of leaseholders qualify and are in favour.

Leaseholders have to pay the landlords' reasonable costs such as valuations, legal bills for checking the claimant's eligibility, and conveyancing. But each side bears its own costs related to the tribunal.

If either party is dissatisfied with the tribunal's ruling over the valuation, they can appeal to the Lands Tribunal.

Timothy Curran, who has set up a firm to help people with leasehold enfranchisement, believes that flat-owners with shortish leases are missing an opportunity if they sell without applying for a lease extension. It is possible for potential sellers to make a claim to add 90 years to the lease and reduce the ground rent to a peppercorn, and assign that right to the purchaser. This means that the new owner does not have to wait three years to qualify for an extension.

But if a deal is arranged with a willing landlord outside the Act, it should be possible to set up a back-to-back arrangement so that the funds to pay for the lease extension come from the sale.

Extending the lease can hike the value of a property. For instance, a two-bedroom central London flat with 12 years to run on the lease might be worth pounds 55,000. But extending the lease by 90 years would increase its value to about pounds 170,000.

The sums involved in buying the freehold are usually more modest. For instance, a three-bedroom, purpose-built flat in a block of six in Chiswick, West London, with 78 years to run on the lease might be worth about pounds 86,000. The same flat with a share of the freehold would be worth about pounds 91,000 - an extra pounds 5,000. But the cost of enfranchisement would be about pounds 3,500 to pounds 4,500 per flat.

A two-bedroom flat in a purpose-built block of six in Camden Town, North London, might sell for pounds 107,000 with a 65-year lease, but pounds 117,000 with a share of the freehold. The costs in this case would be about pounds 7,000 per flat.

Often the motivation for buying the lease is not to make money but to gain control of the building. People who own the flats can organise the maintenance of the building and services, such as cleaning common parts, and keep an eye on costs.

Leasehold Enfranchisement Advisory Service 071-493 3116.

'Buying Your Freehold or Extending Your Lease', by Timothy Curran. Price pounds 11.99, including P&P. Available from Leasehold Enfranchisement Ltd, The Swan Centre, Fishers Lane, London W4 1RX. Tel 081-742 8829.

(Photograph omitted)