This Q & A was first published in Absolutely City & Angel Magazine, November 2013. Property Partners Andrew Flint and Hema Anand have a regular legal expert column in the magazine to answer questions on residential property.
We are a group of 6 Leaseholders who have recently bought the freehold of our building. I am now selling my flat and have been told to extend my lease, which I did not think I needed to do given that we have bought the freehold? I have 78 years left to run on my lease. Can you help?
This is a question that arises very regularly. Once leaseholders collectively buy the freehold interest of their block of flats (or building that has been converted into flats) they believe that their leases have come to an end or that nothing further needs to be done in respect of their lease because they now own a share of the freehold. This is not the case.
When leaseholders collectively acquire the freehold, they buy the freehold subject to the leases of their flats. This means that the leases remain after the freehold has been bought. You each own the leasehold interest of your flats and you collectively own the freehold interest of the building.
Owing to the fact that you have a “short” lease, the incoming Buyer’s solicitor probably does not wish to rely on the others to grant a lease term extension to the Buyer after the flat has been bought or it may be a requirement of the Buyer’s Lender that the lease be extended before the Lender is willing to lend to the Buyer etc.
Before the freehold is acquired and generally at the outset of a freehold acquisition, you should agree if whether or not it is your intention to extend leases and if so, on what terms. (You may have entered into an agreement in respect of such issues). For example, having just paid to acquire the freehold, you presumably will not wish to charge each other a premium to extend leases to say 999 years and reduce any ground rent to a nominal amount. Whilst there is an assumption that you will grant to yourselves new long leases without payment, please do bear in mind that if there is a time lapse between acquiring the freehold and granting the new leases, there may be disquiet amongst the leaseholders to not agree to charge nil premium when extending the lease.