Freeholders: Rights Under the 1967 Act

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A claim for the freehold

What is the leaseholder’s right?

If you own the freehold of a house which is subject to a lease, the Leasehold Reform Act 1967 gives the leaseholder the right to acquire the freehold from you, subject to certain qualifying criteria being satisfied, and on payment of a price.

How does the leaseholder qualify?

There are three basic questions that need to be answered. First, does the building qualify? Secondly, does the lease qualify? Thirdly, does the leaseholder (legally known as the ‘tenant’) qualify?

In order for the building to qualify, it must be a “house”. This has developed into a wide definition and can include a shop with a flat above, or a building converted into flats. There must however be no material over/under-hang with an adjoining building.

The lease must be of the whole house, and it must be a long lease, which means a lease originally granted for a term of more than 21 years. There are different rules if the leaseholder has a business tenancy (which, for example, might be the case if the premises consist of a shop with a flat above).

The leaseholder must have owned the lease for a period of at least two years before making a claim. Except in certain limited circumstances, the leaseholder no longer needs to satisfy a residence test.

The price

The price is calculated by valuation methods prescribed by the Act, of which there are three. Which one applies to the leaseholder’s claim will depend on when the house qualified under the Act (amendments having been made to the Act to make it easier for a house to qualify). In every case, the valuation date is the date of the claim.

How does the leaseholder claim?

The leaseholder needs to serve a notice of claim, in a prescribed form, on you as the freeholder.

The Act requires you to state, within two months of receipt of the Notice of claim, whether or not the claim is admitted. If you admit the claim, you should inform the leaseholder of the price that you are seeking. If you reject the claim, the leaseholder will need to decide if he wishes to dispute the rejection through the courts.

In addition to the freehold price, the leaseholder will be required to reimburse you for your reasonable legal and valuation fees.

Disputes

If the claim is admitted and either the terms of the conveyance or the price are disputed, either party can apply to the First-tier Tribunal (Property Chamber) for the matter in dispute to be determined. Most claims are settled by negotiation. However, if a First-tier Tribunal is required to make a determination, an application can be made for permission to appeal that decision to the Upper Tribunal (Lands Chamber).

Completion

Once the terms of the conveyance and the purchase price have been agreed or determined by a tribunal, the matter reverts to a conveyancing transaction with the parties proceeding to completion.

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ALEP was set up in 2007 in response to concerns raised by owners of leasehold properties who wanted reassurance that the people they were dealing with were reputable. Freeholders also require this reassurance.