When does my leasehold flat become a freehold flat? Dispelling the myth of ‘virtual freehold’
16 May 2022
Under the Leasehold Reform, Housing and Urban Development Act 1993 (the Act) leaseholders have a right to acquire the freehold of their building if they meet certain criteria. This process is called collective enfranchisement.
With a collective enfranchisement, the freehold of a building is often purchased by a nominee purchaser company. The company will be incorporated for the sole purpose of acquiring the freehold, by the leaseholders who are participating in the collective enfranchisement claim .
One of the requirements under the Act is that each participating leaseholder must own a flat in the building under a long lease (a lease for more than 21 years) to participate in the collective enfranchisement claim. Following the completion of the collective enfranchisement process, when the company purchases the freehold, the participating leaseholders will continue to own their individual leasehold flats together with a share in the company.
This can cause confusion for the participating leaseholders because they have collectively purchased the freehold but their flats remain leasehold interests. This means that the leases which were granted in respect of each individual flat will still exist and the relationship of freeholder and leaseholder remains the same; the participating leaseholders remain the leaseholders and the company becomes the freeholder.
After the company has acquired the freehold under the Act, the leaseholders may wish to extend the term of their leases to a term of 999 years. It is not uncommon for a 999-year lease to be described as ‘virtually freehold’; however, the only recognised estates in land are freehold, leasehold and (much less adopted) commonhold. Therefore, a virtually freehold estate simply does not exist and as such, the leasehold flats will not become freehold interests. The leases will still exist and both parties must continue to observe their obligations under the individual leases.
If you would like to discuss this topic or any other matter concerning acquiring the freehold of your building or extending your lease then please contact a member of Birketts’ Enfranchisement Team.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at May 2022.