As a leasehold flat owner, subject to certain qualifying criteria, you have a legal right to extend your ground lease. This is achieved by the granting of a new 90 year extension, added to the time left on your existing lease. No further ground rent will then be payable as this will revert to what is called a peppercorn (i.e. nil) ground rent.
As the flat will not be reverting to the freeholder for an additional 90 years beyond the existing lease, and they will no longer be receiving a ground rent each year, their “loss” needs to be compensated. This is done by way of a capital premium paid by you to the freeholder. It is essential that you should not accept the initial quotation from your freeholder. They invariably quote high and, if the correct premium is negotiated, agreed and paid, you will be adding significantly more than this cost to the value of your flat. Therefore, the effect is a net gain in the value of your property.
If you live in a block of flats, there are also opportunities to group together to buy the Freehold, assuming all the qualifying criteria are met, and this is known as Collective Enfranchisement. This provides a number of benefits:
- You own a share of the Freehold, giving you and the other leaseholders control over it.
- Your lease can be extended to 999 years at no additional cost, and a premium can be received to extend the lease of other flat owners who did not participate in the original Freehold purchase.
- Generally speaking, those flats which are on a shared freehold basis command higher prices and are more desirable than those with third party freeholders. This is especially important in respects of dealing with service charges and overall control of the development.