If you own a flat with a long lease (granted for more than 21 years) you have the right to purchase the freehold of the building. This is referred to as collective enfranchisement.
Where a landlord or management company owns the freehold of a property that contains flats, the flat owners will be required to pay service charges to them. They will also often need to ask permission for certain actions such as letting the property and carrying out alterations. If the flat owners act together, then a majority of them may be able to buy out the landlord and impose their own rules.
Advantages in collective enfranchisement
One of the biggest advantages is that leaseholders will be able to grant themselves lease extensions at no cost if they own the freehold. This can substantially increase the value of a property and can be expensive and time-consuming to arrange if it has to be done through a landlord.
Where a group of residents owns the freehold, they will be able to arrange works to the property as they wish. They can choose the best value quotes for maintenance and insurance and agree on how much will be spent and how much collected each month in service charges. They can also decide not to pay ground rent and how much to put aside into a sinking fund for large items of expenditure that may arise in the future.
Where leaseholders own the freehold, it makes the property more attractive to buyers, meaning it could be easier to sell.
Eligibility for leasehold enfranchisement
Both the leaseholders and the property will need to be eligible to take on the enfranchisement process. Requirements include:
- Two-thirds of the flats are owned by leaseholders who have leases of more than 21 years remaining
- The building contains two or more flats
- The flats are part of a building or a self-contained building of flats
There are certain situations in which tenants do not have the right of collective enfranchisement, including:
- Where a leaseholder owns three or more flats in a building
- Where more than 25% of the building is commercial
- Where the landlord lives in the building and it is divided into four flats or less
The collective enfranchisement process
There is a set procedure for carrying out collective enfranchisement and it is vital that each step is adhered to, or you may lose the right to buy the freehold. If you are unsure as to the steps involved, you are strongly advised to seek professional help. An expert property solicitor will be able to deal with the collective enfranchisement on behalf of you and your fellow leaseholders.
To start the process, you and the other leaseholders who wish to take on the freehold need to set up a management company, with each of them being a member.
An initial notice should then be drafted and served on the landlord. This should include a range of information, including details of those who wish to purchase the freehold and how much they intend to pay. You can also include a date by which you would like to landlord to respond, which should be at least two months after they have received the notice.
The landlord may respond with a counter notice requesting a higher payment. If this is the case, negotiations can be entered into to try and agree on a price. Where negotiations fail, the leaseholders can ask the First Tier Tribunal (Property Chamber) to decide the matter.
If the landlord does not respond to the initial notice, then the leaseholders have the right to buy the freehold under the terms set out in the notice.
Calculating the price of buying the freehold
The main question that most leaseholders have when deciding whether to go ahead with collective enfranchisement is how much they will be required to pay to the landlord for the freehold.
This will need to be calculated by an expert surveyor and will include reference to:
- The amount of the ground rents
- The value of the freehold once the leases have expired
- The ‘marriage value’, which is the increase in value of the properties once the freehold has been acquired and which is split between the landlord and the buyers 50:50
Valuing the premium for acquiring a freehold is not an exact science and the surveyor is likely to provide a top-end and bottom-end valuation.
The flat owners will be liable for the legal costs and the surveyor’s fees as well as the landlord’s reasonable costs.
Contact us
If you would like to speak to one of our expert property lawyers, ring us on 0333 305 5189 or email us at info@lpropertylawyers.co.uk
