Many UK residential flats are sold on a leasehold basis, meaning that the flat owner – who is also the tenant – has a lease entitling them to occupy the property for a certain number of years. The lease will be entered into with the freeholder or landlord, who commonly owns the building and land that it sits on.
Here, leasehold dispute resolution specialist Eleanor Longworth shares an overview of the process where leaseholders are able to join together to buy the freehold of the building.
What is collective enfranchisement?
Tenants of a whole or part of a building of residential flats have the statutory right to purchase the freehold of their flat from the landlord, if they qualify, under the Leasehold Reform Housing & Urban Development Act 1993. This is termed collective enfranchisement.
It is becoming more common for flat owners to acquire the freehold interest of the building, because of the benefits.
Often the freehold is acquired through a company set up by the participating tenants. Once the freehold has been acquired, the tenants could, for example, grant themselves new leases for longer terms or vary the covenants to make them more favourable for them, such as by allowing them to carry out improvements.
They could also take control of management, meaning that they can protect themselves against excessive fees that the current freeholder may charge. The longer the term and the greater the control often means that the properties are better marketable.
Do I qualify?
The rules governing qualification for collective enfranchisement are complex however, in brief:
- You must be a long leaseholder. Specifically, the lease must have held a term of 21 years or more when first granted
- Your building must qualify. The building must contain at least two flats and two out of three must be let to qualifying tenants
- There are certain exemptions
- At least 50 per cent of the total number of flats within the building, held by qualifying tenants, must participate in the collective enfranchisement process
What’s the collective enfranchisement procedure?
The purchase price of the freehold will firstly need to be assessed by a valuer who will provide you with expert advice in relation to the premium payable. A valuer will often conduct negotiations on your behalf too.
A participation agreement, entered into between the tenants, is often suggested at an early stage. This details what has been agreed between the participating leaseholders, the process and arrangements in relation to costs. It is advisable to enter into such an agreement because this can protect tenants if, for example, another leaseholder changes their mind throughout the process.
A nominee purchaser is chosen, which is usually a company set up by the participating tenants for the specific purpose of acquiring the freehold.
An initial notice will then be served. This is the point at which you formally let the landlord know that you intend to acquire the freehold. You become responsible for the landlord’s costs from this point.
The landlord must then serve a counter notice indicating whether it accepts your claim, or state whether it intends to oppose the application and the reasons why.
If the landlord accepts the claim, negotiations generally follow however, if terms cannot be agreed, the purchaser must ask the tribunal to determine any outstanding points, within six months of service of the counter notice.
The road to collective enfranchisement is complex. It is vital to seek the expert advice of a leasehold dispute resolution specialist to guide you through this process and ensure your interests are protected.
Our specialist teams will be on hand to guide you through the whole process. From setting up the purchasing company, drafting the participation agreement, serving notice of your intention to purchase, to the transactional process of conveying the freehold to the nominee purchaser and completing the enfranchisement process.
For further advice on acquiring a freehold, or any other leasehold dispute resolution matter, call Eleanor Longworth on 0161 761 4611 or email her at email@example.com