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Leasehold is the standard tenure for flats, but not houses. Indeed, owners buying the freehold of their house was once a pretty unusual occurrence. But then, over a couple of decades, selling new build houses on long leases became increasingly common. Developers defended the practice, arguing, for example, that it allowed for uniform management across mixed developments of flats and houses.
However, selling leasehold houses attracted considerable criticism, with many developments embroiled in the so-called ground rent scandal. Affected properties saw their ground rents doubling every 10 or 15 years, making them unmortgageable and unsaleable.
The Government’s response was the Leasehold Reform (Ground Rent) Act 2022 (“the Act”). From 30 June 2022, with several exceptions, ground rents on new long leases of flats and houses were abolished. But, the Act was not retrospective, and tens of thousands of leasehold houses remain.
See our main Leasehold Houses page. |
Buying the freehold of a house
Thanks to the Leasehold Reform Act 1967 (“the 1967 Act”), in most cases, you can buy the freehold of your property. Indeed, the 1967 Act gives leaseholders the right to either acquire their freehold or extend their lease by 50 years. However, the lease extension route is seldom used.
There are two possible routes to buying the freehold of a house:
- The formal route under the 1967 Act is subject to satisfying qualifying criteria.
- The informal route involves simple negotiation and agreement with the freeholder.
As with lease extensions of flats, the formal route offers more protection and the option to apply to the tribunal failing agreement.
Although the formal route will likely cost more in professional fees, the informal route is totally at the landlord’s discretion, meaning they can ignore your request.
What are the qualifying criteria?
The main qualifying criteria under the 1967 Act are:
- the property must be a house held under a long lease, i.e. one originally granted for a term of more than 21 years.
- you must have owned the house for more than two years, beginning with the date of registration at the Land Registry. However, if you have not owned the house for two years, you may nevertheless qualify if you succeeded to the tenancy on a family member’s death and have resided there.
To exercise the right, it’s no longer necessary for you to have lived in the property. In other words, the qualification is ownership, not residency.
What is a house?
It may seem strange, but it’s not always clear whether a property qualifies as a house.
The building must be self-contained and divided vertically from any adjoining premises to qualify. There is no right to buy the freehold if:
- a material part of another premises runs under or over your house or
- your house similarly runs under or over an adjoining property.
Exceptions preventing qualification under the 1967 Act
Among the exceptions preventing you from qualifying under the 1967 Act are;
- Only the tenant with the lowest interest may acquire the freehold if the house is let under more than one tenancy.
- A business tenant within the meaning of Part II of the Landlord and Tenant Act 1954 does not qualify. That is unless the business tenancy is for more than 35 years, and you have been occupying the house or part of it as your primary or only residence for the last two years (or two years out of ten).
- Tenants of the National Trust do not qualify.
- If your landlord is a public body with a certificate of development under Section 28 of the 1967 Act, you will not qualify.
- Tenants of specific types of shared ownership lease will not qualify.
- You will not qualify if your tenancy is a protected one under the Agricultural Holdings Act 1986.
Buying the freehold of a house: what does it cost?
Unfortunately, the valuation formulae are complex. They are largely based on ground rents, yields, and the length of the unexpired lease term. If the lease has less than 80 years left when you serve your claim, you must also pay ‘marriage value’, which will likely add considerably to the price. The only exceptions are where:
- the landlord waives their claim to marriage value (unlikely), or
- if your lease falls under the ‘original’ basis of valuation.
On top of that, you must pay your landlord’s reasonable professional costs – usually legal and surveyor’s fees. You will also have your own surveyor and legal fees, including conveyancing, search, and Land Registry fees. And you may need a barrister on referral to the First Tier Tribunal.
Remember that the landlord will require a statutory deposit, calculated based on three times the current annual rent. This could prove substantial.
With all these possible expenses, what should I do?
If you are considering buying the freehold of a house, in the first instance, always contact us for an initial discussion. We can give you a full breakdown of the likely costs involved. You can then consider whether it’s affordable.
You should note that, unlike claims for a lease extension or collective enfranchisement, the initial notice for a claim for buying the freehold of a house creates a binding contract. So, if you fail to proceed, you will lose your deposit. However, you have the right to withdraw within one month of the price being ascertained or agreed.
Can the landlord impose restrictions on the freehold?
The 1967 Act specifies the rights and covenants contained in your lease that will still apply to the freehold following your purchase.
What if the freeholder disputes your entitlement or a price cannot be agreed?
Disputes over your entitlement to claim proceed to the County Court. However, if the disagreement concerns the price or terms of the freehold transfer, the correct forum is the First Tier Tribunal.
Unfortunately, not only can this be a lengthy and expensive process, but in the County Court, the general rule is that the losing party pays the other party’s costs. This is quite a risk to weigh at the outset. In the First Tier Tribunal, parties are generally responsible for their own costs.
On agreement, what happens next?
Once everything is agreed or resolved (with or without referral to the County Court or First Tier Tribunal), then the freehold transfer is executed and monies paid over. However, you must still undertake pre-completion conveyancing, including searches at the Land Registry and elsewhere.
Following completion, the transfer is sent to the Land Registry for registration, and any Stamp Duty Land Tax (SDLT) is paid. Upon registration, your existing lease is cancelled.