Why do I need to extend the lease of my flat after I have participated in a claim to acquire the freehold of my building?

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Once the participating leaseholders in a building collectively acquire the freehold interest in that building and they have secured their ‘share of freehold’, in order to ensure that their flat can realise its maximum potential value, the leases of the participating flat owners must be extended to 999 years immediately following completion of the acquisition of the freehold interest.

Therefore, if you have participated in a claim to acquire the freehold interest in your building either through the collective enfranchisement provisions, the right of first refusal provisions or informally with the agreement of your freeholder, we would strongly encourage you to extend your lease to 999 years and formally reduce your ground rent to a peppercorn.

If there were no leases granted over the individual flats then the participating flat owners would all be deemed to jointly own the freehold interest in the whole building (including all the flats in the building) so the effect of leases over the separate flats is to ‘ringfence’ each individual flat owner’s ownership in their own flat.

Further, a lease includes important provisions to describe the extent of the flat demised to the flat owner and imposes important rights, covenants and agreements in relation to the management and service charge of the building to preserve the enjoyment and value of each flat.  Further, without a lease in place, a flat owner would not be able to sell or mortgage/remortgage their individual flat or otherwise deal with it in the future separately from their share in the freehold in the building itself.

Once the participating flat owner acquires their share in the freehold interest, in consideration of the funds that they have contributed towards the premium (and associated costs), they would be entitled to extend their lease to 999 years and reduce the ground rent to a peppercorn for a nil premium. This is the best and most marketable tenure on which to hold a flat in England and Wales.

If the participating flat owners chose not to extend their lease then their existing shorter lease would remain in place.

Other advantages of immediately extending the lease following an acquisition of the freehold interest in the building include:-

1. In the future if any of the other flat owners in the building sell their flat to new owners who are difficult to deal with or contact (perhaps they live elsewhere or aboard), particularly in a smaller building, then they may delay or obstruct signing a new 999 year lease or ask for premium for granting the lease extension which can cause great difficulty for the flat owner when trying to sell or remortgage and may lead to a complex trusts of land dispute and increased costs.
2. If the freehold interest is held in a company name and the leases are not extended immediately after the acquisition of the freehold, there may be adverse tax consequences on both the freehold company (corporation tax liability) and the individual flat owner (capital gains tax liability)  as the freehold company is deemed to be connected to the individual flat owner
3. Often if the flat owner is selling their flat with a share of freehold, a potential buyer will ask them to extend the lease to 999 years before completing a purchase (as their solicitor will likely advise them of the risks of point 1 and 2 above) and it will consequently delay completion of your sale whilst this point is resolved.

How can we assist you?

For further information about extending your lease to 999 years if you have a share in the freehold interest and/or would like to obtain a quote for our fees please do not hesitate to contact Sajel Patel on sajel@leaselaw.co.uk or 0204 511 9103 or Jade Thomas on jade@leaselaw.co.uk or 0204 511 9100.