Tag Archives: Info for leaseholders

Tax and lease extensions

A lot of people think that once they have purchased their freehold, “that is that” and there is no further action to take. But, they could be wrong.

Why?

Because as a lease is a wasting asset, notwithstanding the fact that you may own the freehold via a share in a company, once the freehold has been purchased, the lease term still continues to diminish.

If you do not take some sort of action to extend the lease to say, 999 years and make it effectively ‘infinite’ then as the lease decreases in value you may be slowly storing up trouble.

Ideally all of the leases for participating flats should be extended at the time of purchase. If this is done (or if it does not need to be done as the leases are already very long) then this problem will not arise. However, if the leases are of ‘modest’ or ‘normal’ length and there is a delay between buying the freehold and extending the leases then there is a risk that this problem will arise.

What is the problem?

Effectively, CGT (Capital Gains Tax) is the problem. If the company grants a lease extension back to the leaseholder and the value of what the leaseholder gets back differs significantly from what was paid to receive this benefit in the first place (i.e. if the value of the lease extension is higher than the ‘cost’ of buying into the freehold), then the company has made a disposal of something of value and may well face a CGT liability.

As the company may have no assets or cash to pay for this (and why would it want to pay this expense on someone else’s behalf?) it will need to have this liability covered off (i.e. paid for by the leaseholder) before the lease extension is granted.

The moral of the story is therefore, don’t delay in extending leases to 999 years after completion, or to ensure that it is a requirement of your participation agreement that this is done.

In certain circumstances, there may be some ‘ways’ around the issue, but these are very much circumstance dependent. It is also likely that the company will need valuation advice. These issues have become the focus of discussion, including a recent debate at the ALEP Conference. in practice, I see a number of tax and enfranchisement issues on a fairly regular basis and freehold company directors should always consider carefully their position in such situations.

 

What is Freehold? and How do I Buy My Freehold?

I recently recorded a podcast with the website Property Battlefield that looked at the question of ‘What is freehold?’ and also how flat owners can go about buying their freeholds.

To download a copy of the podcast click here: Podcast – “What is freehold?”

The discussion was about why we have freehold. It also looks at the two main ways in which leaseholders can buy their freeholds. This tends to be either under the Landlord and Tenant Act 1987 where the landlord serves a notice seeking to sell, or to obtain clearance for a sale, or under the the Leasehold Reform Housing and Urban Development Act 1993. In the second case, the flat owners serve notice on the landlord.

Both options present a range of issues that need to be considered, including pricing and timing.

Property Battlefield is a site run by John Savage that provides information for estate agents and other property professionals although the topics covered in the podcast will be of interest to property investors, managers and anyone looking to buy their freehold or find out more about buying the freehold to their block.

 

Missing freeholders: a webinar and podcast

 

A while ago I recorded a podcast for LEASE (the Leasehold Advisory Service) on the subject missing freeholders and how to buy your freehold if you happen to be in this situation.

You can listen to the podcast here: http://www.lease-advice.org/publications/documents/document.asp?item=149

This week I was delighted to provide a webinar for News on the Block, a recording of which can be found here:

http://propertycpd.tv/events/missing-freeholders-how-to-extend-your-lease-or-buy-your-freehold-when-the-landlord-cannot-be-found/

This webinar is aimed at flat owners and managing agents / estate agents and looks at some of the practical issues involved. It also explores the available options under the 1993 Act and the 1987 Act.
Missing freeholders continue to present a range of problems In practice.

I have agreed the terms of a lease extension, but have not completed. Help!

I am proceeding under the Leasehold Reform, Housing and Urban Development Act 1993 and have agreed the terms of the lease extension, but have not completed.  What can I do?

In circumstances where the freeholder has refused to complete or is unwilling to do so for a number of reasons, it may become necessary to make an application under the County Court.  This needs to be done within a certain time frame with terms being agreed or there is a significant risk that the claim will be lost.

You should take specialist advice on this, but in general terms the relevant time frame is 4 months from the date on which all of the terms where agreed.

If you are proceeding in a voluntary transaction (where no notices have been served) then there is no obligation for the landlord to cooperate with you, unless you have exchanged a contract or have some other enforceable mechanism to ensure that the lease is granted. For further guidance on this, expert help will be required.