Lease Enlargement

One piece of land with two or more freehold titles? A tenant unilaterally converting (“enlarging”) their leasehold interest to freehold without needing the existing freeholder’s consent, or even consulting with them? And huge uncertainty over what happens afterwards. Welcome to the strange world of lease enlargement.

Lease Enlargement

Under the provisions of Section 153 of the Law of Property Act 1925, tenants of certain long leases have the right to “enlarge” their lease term into a freehold interest. However, unlike enfranchisement provisions under the Leasehold Reform Act 1967 or the Leasehold Reform, Housing and Urban Development Act 1993, enlargement can occur without the need to:

• pay a premium to, or
• obtain consent from, or
• even consult with,

the existing freeholder.

Unfortunately, the scope for using the procedure is limited as all the following must apply:

1. The lease was originally granted for a term of 300 years or more.
2. At least 200 years remain.
3. The rent is a peppercorn or otherwise has no monetary value (or if the rent did have a monetary value, the obligation to pay it has ended, whether by release, being barred by lapse of time or otherwise). If rent of a pound or less has not been paid for 20 years, it will be deemed to be no longer payable.
4. The landlord has no right to forfeit for breach of any of the tenant’s covenants.
5. In the case of an underlease, the superior lease must also satisfy the above conditions.

Of the above conditions, it is number 4 that typically prevents enlargement when it would otherwise be available. If your lease refers to ‘forfeiture’ or a ‘Section 146 Notice’, enlargement does not apply.

Residential and Commercial

It can apply to residential or commercial leases, although one might imagine that the number of commercial leases able to benefit from the legislation is likely to be extremely small.

Lease Enlargement Procedure

A tenant exercises their right to enlargement by filing a deed at HM Land Registry, declaring that from the date of the deed, the lease term shall be enlarged into a fee simple (i.e. freehold land).

It might be assumed that the Land Registry would then simply close the existing registered freehold and leasehold titles and replace them with a new freehold title in the name of the (former) tenant. However, due to uncertainty about the precise legal effects of Section 153, they have adopted a practice of retaining the old freehold title, closing the leasehold title, and granting a new freehold title – thus creating a bizarre situation whereby the same area of land will have two freehold titles. Questions such as:

• which freeholder an interested buyer should approach to purchase the property;
• how the value of the freehold should be apportioned across the two titles; and
• how new leases could be granted,

remains legally uncertain, as the courts have not analysed these matters.