The commonhold and leasehold reform act 2002 – lease extensions

In last month’s issue of Trusts and Estates there was a discussion of the provisions of the Commonhold and Leasehold Reform 2002 Act under which leaseholders of flats may, acting collectively, take over the management from the existing freeholder.The Act received Royal Assent on 1st May 2002, but the provisions are not yet (at time of writing) in force. They will brought into force by Statutory Orders. It is thought that the necessary Orders may be made in the course of July, relating to some parts of the Act.

The new Act makes some changes to the pre-existing provisions of the Leasehold Reform Housing and Urban Development Act 1993 (“the 1993 Act”), regarding the right of leaseholders, acting collectively, to purchase the freehold. Trustees who hold a leasehold flat as an investment or to provide a residence for a beneficiary may be faced with the possibility of participating in such a collective purchase. As with the “Right to Manage” discussed in last month’s issue, the question will, presumably, be largely a financial one. Obviously, by acquiring the freehold, the leaseholders will acquire the right to manage the property, but the freehold may be a valuable property right.There may be valuable grounds, garages, or parking spaces and, unless the original leases were granted for a very long term, the purchase of the freehold may be valuable as offering the opportunity to extend leases, something discussed in more detail below.