Buy your freehold now before the law changes

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If you want to buy your freehold, it could be more expensive following the proposed planning reforms

Would you like to buy your freehold? If so, start the process now. This is the advice from Ringley Group MD Mary-Anne Bowring who is urging flat owners to get the ball rolling before new planning laws come into force in September. Radical planning reform announced this week could have unintended consequences for leaseholders, she warns.

On Monday, the Prime Minister announced changes to the planning system that aim to make it easier to repurpose empty retail and commercial premises and redevelop them as new homes instead. So far, so good. But under the new rules, freeholders of purpose-built residential blocks will also be able to build additional space above their properties via a fast track approval process. This will be subject to neighbour consultation but could have a negative impact on flat owners in blocks around the country who want to buy their freehold.

A planning policy paper is expected later this month, setting out proposals to reform England?s seven-decade-old planning system. The changes are then expected to come into effect by September 2020.

Here?s the Ringley take on what the changes could mean for flat owners. The valuation method used under current legislation for leaseholders who want to enfranchise and buy the freehold of their block of flats provides for ?hope value? in the freehold interest. Hope value can include the market value of land, or roof or airspace development rights based on the expectation of getting planning permission for development. The proposed new legislation just made the hope value of roof or airspace development less of a hope and significantly more of a certainty!

The hope value of extra flats that could be built on top of blocks under the proposed planning changes becomes a positive presumption, which will impact the enfranchisement valuer's calculation of the hope value to be included in the enfranchisement premium. So if we take the example of a block where all the leases are long leases with more than 80 years unexpired and therefore there is no ?marriage value?, the enfranchisement premium would be circa 20-25 x the ground rent plus the present value of the freehold deferred by the number of years the leases had unexpired. To buy the freehold, each leaseholder would pay a percentage of this total in relation to their flat as well as a share of what is left for the flats who are not participating, including hope value. But under the proposed changes, in theory, the premium for leaseholders would increase because the certainty of the hope value for buildings purpose-built and constructed between 1 July 1948 and 5 March 2018 will be a fast track approval process.

Another issue that looks unfairly weighted against leaseholders ? and may end up being left for the courts to determine - is whether it is physically possible to build additional storeys in the first place. Some blocks may not have sufficient structural bearing capacity in the original design to do so but it could take flat owners a lot of money to prove that this may be the case and doubtless, some leaseholders will suffer. It also means that freeholders of purpose-built blocks constructed between 1 July 1948 and 5 March 2018 will be in less of a rush to create roof space leases to increase the enfranchisement price by creating a degree of certainty of further development. Needless to say, for blocks constructed in this time period the weighting of the hope value for enfranchisement purposes will significantly shift!

So our advice to leaseholders wishing to buy their freehold is to start the process and get their S13 notice in as soon as possible before this becomes law in September.

Our in-house legal practice Ringley Law has many years of experience in enfranchisement and is happy to advise flat owners on the best way to proceed. You can also read our guide to buying your freehold on our website here https://leaseholdguidance.co.uk/. Or read more about it in our Freehold Enfranchisement e-book at https://ringley.co.uk/ebooks

www.ringley.co.uk
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