Topic 6 - Legislation

Question 1

Why do lenders not like Freehold flats as security?

Answer 1

Because their is no accountability in common areas. For example one person’s ceiling is another person’s floor and if that collapses who is liable?

Question 2

What happens to ownership of a leasehold property when the lease expires?

Answer 2

It reverts to the freeholder.

Question 3

Failure to comply with the terms of the lease by the leaseholder could result in its termination. This is called forfeiture. Who has the greater rights, freeholder or lender?

Answer 3

The rights of the freeholder take precedence of the those of the lender. In the event of forfeiture the lender has no security at all.

Question 4

How does the tenure commonhold work?

Answer 4

Specifically for larger developments. Each property owner owns the freehold of their property and they are also members of the commonhold association which is effectively like a management company.

Question 5

Who has to be agreeable when converting a property to commonhold?

Answer 5

All interested parties, mortgages, leaseholders and the freeholder. Any objection by any party will not allow the change.

Question 6

What is a commonhold community statement?

Answer 6

It is a document that sets out the rights and obligations of all unit holders, voting majorities and other essential rules.

Question 7

What is it known as when all leaseholders collectively purchase a property’s freehold?

Answer 7

Collective Enfranchisement

Question 8

In order for a leaseholder to be part of a collective enfranchisement, how do they qualify?

Answer 8

Must have a minimum of 21 years on the lease at the time of ownership

Question 9

When does a leaseholder not qualify to be part of collective enfranchisement?

Answer 9

1. If the freeholder is a charitable housing trust and provides the lease for charity purposes.
2. If the lease is commercial
3. If a tenant owns two or more qualifying leases

Question 10

When can a qualifying tenant purchase the freehold?

Answer 10

1. Building must contain two or more flats
2. At least two thirds of the flats are on long leases (21 years or more)
3. No more than 25% of internal floor space be non-residential.
4. 50% or more leaseholders must participate

Question 11

Leaseholders wishing to purchase the freehold must compensate the freeholder which includes what?

Answer 11

1. Loss of value when leasehold reverts to freehold
2. Loss of ground rents
3. the marriage value of the property − which is the potential increase in the property’s value due to the new lease. The Leasehold Reform Act states that this value should be divided equally between owner and purchaser, so only 50 per cent will be added to the compensation calculated. If the length of unexpired time left on the lease is more than 80 years, the marriage value is ignored. The freeholder can also claim for the value of any development potential.

Question 12

If a leasehold wishes to extend their lease how long must he have owned it for?

Answer 12

2 years

Question 13

After owning the lease for 2 years and wishing to extend the lease, how long do you have the right to extend?

Answer 13

90 years

Question 14

Can leaseholders arrange their own management company should they so wish?

Answer 14

Yes

Question 15

On what proviso should leaseholders wishing to set up their own management company follow?

Answer 15

1. No need to seek permission from landlord or involve the court
2. Leaseholders do not have to prove existing management company is running the company poorly. It’s their prerogative to set up a new company
3. Landlord must be served notice
4. Landlord has the right to be a member of the new company

Question 16

What is the maximum number of people that can legally own a single property?

Answer 16

4

Question 17

Joint tenancy is when…?

Answer 17

More than one person owns a property in its entirety with no defined share. In death the ownership passes to the survivor(s) irrespective of wills or the laws of intestacy.

Question 18

How much income from a rent-a-room scheme without paying tax?

Answer 18

£7,500 pa

Question 19

When does a CGT liability come in to force on an individual’s main residential property?

Answer 19

Exemption of CGT liability remains for 18 months after moving out of property. CGT liability then starts from that point in time.

Question 20

When does a CGT liability come in to force on an individual’s main residential property if they are disabled or move in to a care home?

Answer 20

36 months following moving out of the property.