Retaining freeholds

Enfranchisement is the statutory right to buy the freehold on a property. The right of the leaseholder to do this changed on 7 September. Now, shared ownership leases can be excluded from enfranchisement.

Why would a landlord want to exclude shared owners from enfranchisement?

There are two possible reasons. First, to ensure that the leaseholder has staircased and acquired 100 per cent of the equity. Second, the landlord may want to retain the freehold if there is a shortage of social housing. A landlord can do this by granting an exempt lease under schedule 4A of the Leasehold Reform Act 1967.

Why was the law changed?

It was changed for several reasons. Previously, only social landlords could use schedule 4A and the only way to restrict staircasing was to grant the lease outside the low rent test.

Hasn’t the low rent qualification test had already been revoked?

Yes, in part. Before 1996, a lease with a rent above £1,000 in Greater London or above £250 elsewhere did not qualify for enfranchisement.

This qualification was revoked. However, it was retained for shared ownership leases of houses granted by social landlords.

So what has changed?

First, the change in the law means that all landlords (not just social landlords) can grant exempt leases under schedule 4A .

This means that shared ownership leaseholders cannot acquire the freehold until they have bought all the shares in the property.

Second, all landlords can grant shared ownership leases restricting staircasing in ‘protected areas’ provided the lease complies with the regulations.

How can landlords retain the freehold of houses in protected areas?

Landlords can retain freeholds by restricting staircasing up to 80 per cent. Alternatively, they can require the leaseholder, who has acquired 100 per cent of the share, to offer to sell back those shares should they decide to sell. If the landlord does not wish to buy the shares from the owner, it must find an alternative purchaser.

How do the changes affect shared ownership leases granted before 7 September?

The changes to the law on 7 September do not affect shared ownership leases granted before then. The old law continues to apply and the changes only affect new leases.

Do these changes affect shared ownership leases of flats?

No, a shared ownership lease of a flat only qualifies for enfranchisement if the leaseholder has acquired 100 per cent of the equity.

James Driscoll and Jessica Lockley are solicitors at Trowers & Hamlins

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