Lease Extension Glossary
Attwells Solicitors are committed to providing jargon-free law across North London, Colchester and Ipswich; therefore, we have produced this useful lease extension glossary.
What is the Commonhold and Leasehold Reform Act 2002? The Leasehold Reform, Housing and Urban Development Act 1993 has been subject to amendment since its introduction. The most significant changes were contained in the Housing Act 1996 and the Commonhold and Leasehold Reform Act 2002
What is a Counter Notice? The landlord’s response to the initial notice served by the participating flat owners
What is a Collective Enfranchisement? The right of a group of 50% or more of flat owners in a certain block of flats to buy the freehold of the building from the freeholder
What is a Deed of Variation? A legal document which allows changes to a lease without the need for a brand new lease to be signed
What is a Flying Freehold? A property which is not vertically divided (e.g. a maisonette) which is held as an independent freehold. Such properties are generally considered unsatisfactory by mortgage lenders due to the difficulty of enforcing covenants.
What is a Freehold Property? The absolute ownership of a property. It is the highest form of holding property in English law.
What is Ground Rent? A sum paid by a flat owner to the Landlord in compensation for the use of the land by the building in which the flat owner’s flat is situate.
What is Hope Value? This is a payable by the Leaseholder(s) when they are buying the freehold of their property. It is extra value attributable to an interest under the freehold where there is a likelihood of being able to negotiate a lease extension in the future. For example, the participating Leaseholders in a collective enfranchisement would pay a ‘hope value’ for the non-participating flats, on the basis that they may profit in the future from granting lease extensions.
What is a Lease? A Lease is a written agreement (contract) between two or more parties setting out the terms reached between the parties
What is Leaseback? The Landlord sells his interest subject to a new lease of 999 years at a peppercorn rent (i.e. nil) to him/herself in respect of part or all of the property.
What is a Leasehold Property? Ownership of leasehold property means that the Leaseholder has a right to use and enjoy that property for a defined period of time, for example 99 years, 125 years or 999 years.
What is the Leasehold Reform, Housing and Urban Development Act 1993? Received Royal Assent on 20th July 1993. It is the radical piece of legislation that introduced the right for leaseholders to extend their leases and the right for leaseholders to purchase the freeholds of their buildings (‘collective enfranchisement’).
What is a Long Lease? In general, a lease granted for a term certain of more than 21 years.
What is Marriage Value? For a lease extension, the value of the Leaseholder’s interest increases when he/she buys a new lease while the value of the Landlord’s interest falls. However, there will often be an overall increase in the total value of the two interests. The difference between the total value of the interests before and after lease renewal is the marriage value i.e. the ability of participating tenants to grant themselves long leases at no premium.
What is a Nominee Purchase? Person(s) or entity named in the initial notice who will acquire the freehold and become the new landlord of the building (this will be the RTE when and if those provisions come into force).
What is a Notice of Claim (Initial Notice)? The notice served by the Leaseholder on the Landlord under Section 13 of the 1993 Act, the service of which formally commences the enfranchisement process.
What is a Participating Tenant? A Qualifying Tenant who participates in the collective enfranchisement process.
What is Peppercorn Rent? A very low, nominal or token rent
What is a Qualifying Tenant? A Leaseholder who fulfils the qualifying criteria, that is, a Leaseholder of a flat under a long lease who does not own three or more flats in the building.
What is a Relevant Date? This is the date the Initial Notice is served. It is also the valuation date i.e. the date at which the valuation is made for the purpose of calculating the price to be paid for the freehold.
What is a Relevant Premises? The Building, the freehold of which is to be acquired.
What is meant by 'Right to Manage'? (RTM) The right of Leaseholders within a block to take control of the management of the building. A Right to Manage company in which each participating Leaseholder is a member must be formed.
What is meant by 'Right to Enfranchise'? (RTE) A Right to Enfranchise Company. The Commonhold and Leasehold Reform Act 2002 states that a claim for a right to collective enfranchisement can only be made through a RTE. These provisions relating to RTEs have been highly criticised and have yet to come into force.
What is a Service Charge? The amount payable by each Leaseholder towards the maintenance and repair of the common parts of a block of flats.