Purchasing a Freehold (Enfranchisement)
Under the 1993 Leasehold Reform, Housing & Urban Development Act groups of leaseholders have a collective right to force the freeholder to sell the freehold to them.
Why should a group of leaseholders consider purchasing the freehold of their block?
The main reasons for leaseholders to purchase their freeholds are because of excessive maintenance, management or insurance charges payable to the freeholder, poor standard of maintenance works to the block and short unexpired lease terms.
Why is the purchase of the freehold beneficial?
Many freeholders charge excessively high insurance and maintenance charges often for low standard work. The purchase of the freehold means that the purchasing leaseholders take over responsibility for the insurance and maintenance. Costs are then often reduced and the standard of works improved. Unless the block is very small, leaseholders will probably still require the services of a managing agent to undertake the management function, however, as the new freeholders you will be able to choose a reputable managing agent and the agent will be answerable to you.
Those leaseholders participating in the purchase of the freehold will be able to extend their leases for nothing more than the cost of the legal work, no further premiums. In addition, if there are any non-participating leaseholders (those who have not joined in with the purchase of the freehold), then these leaseholders will have to pay their ground rent to the leaseholders who own the freehold. They will also have to pay an appropriate premium if they then want to extend their leases. This income then becomes profit for the participating leaseholders and is apportioned between them and is NOT part of the management or maintenance funds.
After the purchase of the freehold, the participating leaseholders will have direct control and responsibility for the management, maintenance and insurance of the block. As well as costs often being reduced, they can also be spread out over a number of years.
Are you eligible to enfranchise (purchase) your freehold?
There are specific requirements which both leaseholders and the property they wish to purchase must satisfy to comply with the terms of the 1993 Act. A brief summary of the requirements is;
- Firstly, the block must be self-contained (terraced and semi-detached blocks are acceptable as long as they are self-contained). The block must contain at least 2 flats and at least two thirds of the flats in the block must be held by qualifying tenants. Not more than 25% of the internal floor area of the block can be in non-residential use.
- Secondly, for a leaseholder to be a qualifying tenant and therefore entitled to participate, a leaseholder must hold their flat on a lease originally granted for a term of more than 21 years. Enfranchisement under the 1993 Act then requires a minimum of 50% of the flat leaseholders (qualifying tenants) in the block to participate in the action. If there are only two flats in a block then both leaseholders need to be qualifying tenants and both need to participate.
These qualification rules are often confusing. We are always happy to provide help and guidance on this to leaseholders prior to any formal instructions.
How do you enfranchise your block?
- Check eligibility
- Decide how many leaseholders wish to participate in the enfranchisement.
- Obtain a valuation in order to determine both the amount to offer the freeholder, and also to ensure that the individual leaseholders are aware of their likely financial commitment.
- The leaseholders chosen solicitor should then draw up a participation agreement which all the participating leaseholders agree to and sign. This commits the leaseholders to proceed.
- Your solicitor then serves a formal Notice on the freeholder to claim your right to purchase the freehold. The freeholder will undoubtedly respond to this by serving a counter notice. This has to be done within 2 months, and will typically request a higher premium payment. Once this counter notice is received there is a maximum 6 months negotiation period however after an initial 2 months either party can refer the matter to the Leasehold Valuation Tribunal (LVT) for determination. As well as the amount of the premium payable, the LVT can also determine the amount of the freeholder’s costs. Freeholders cannot recover their costs at an LVT hearing as unlike ordinary court proceedings each party has to bear their own costs. You should note that very few cases actually proceed to an LVT hearing with the vast majority being settled within the negotiation period.
- As part of the final agreed terms, participating leaseholders will have to pay the freeholders valuation fee and legal fees relating to receiving the notice, serving the counter notice and preparing and completing the legal transfer. Other costs such as the costs of negotiation, any costs relating to preparing for and appearing at an LVT or administration costs cannot be recovered.
How we can help you
Here at Sussex Lease Extensions, we specialise in advising on eligibility, undertaking the necessary enfranchisement valuations, the subsequent negotiations with the freeholder’s valuer, and on the occasional case (where agreement cannot be reached), the necessary preparation and representation at a Leasehold Valuation Tribunal. We offer fee options including competitive fixed fees so you are fully aware of your costs. We can also introduce you to specialist solicitors who also offer fixed fee options.