What is the legislation under where you can buy your freehold?
The legislation that outlines this is the Leasehold Reform Housing and Urban Development Act 1993 (as amended). This has the legal right for the leaseholders of a building, or part of a building to join together and buy the freehold of that building from their freeholder and/or landlord. We will lay out here a brief summary of what is required by the leaseholders to carry out a collective enfranchisement.
What is the qualification for an enfranchisement?
You have to look towards the qualification as a leaseholder first before you can even go beyond this. A leaseholder has to have the following:-
- To qualify as a leaseholder you must have a long lease. Which is defined as a lease of at least 21 years when first granted. In the event that you do not that you wish to extend it then please look at our article on lease extensions.
- A shared ownership lease is a long lease of the owner who has “staircase” up to 100%
- A leaseholder who will not be a qualifying leaseholder if they own more than two flats within the building. They would not be a qualifying leaseholder of any flat.
- A leaseholder is as somebody who owns a property on a lease, particularly 99, 125 or 999 years. The length of the lease decreased year by year until It runs out. A leaseholder is also called a tenant, but this should not be confused with short term agreements. It is essential to be familiar and understand the terms of your lease because this sets out the rights and obligations.
Please refer to our previous article outlining what is Enfranchisement, click here.
What is the qualification of the building?
1) The building must be a self-contained building, or part of a building. If part of the building it must constitute a vertical division of the building. With services either independent of that part or could be provided without significant interruption to remaining parts. In effect it is self-contained.
2) There must be at least two flats within the building and at least two thirds of the flats must be owned by the qualifying leaseholder.
3) No more than 25% of the internal floor area, excluding, areas to be in non-residential use i.e. shops or offices.
4) At least half of the flats in the building must participate and those flat owners must be qualifying leaseholders.
Are there any exceptions to the right to the buy the freehold?
There will be no right of the leaseholders to buy the building where they are as follows:-
1) A conversion into four or few flats and
It is not purpose built
The same person has owned the freehold since before the conversion took place
And they or an adult member of their family has lived there for the past twelve months
There are some other buildings that have exceptions but these are unusual such as a building within a cathedral or a cathedral precinct
Although they may still allow this on a base by base cases.
The freeholder includes any operational railway bridge or tunnel or track.
The above would all be excluded from the collective enfranchisement.
What property is included within the claim?
The freehold of the premises in which the qualifying leaseholders are contained i.e. the block or building. This is important.
The freehold of the premises purchased will also include any “appurtenant” property. Which means premises belonging to or usually enjoyed with the flat. Such as garage, outhouses, gardens or yards or gardens and premises. The property which has a qualifying leaseholder is entitled to use the terms of the lease in common with other occupiers of other premises. This would include such things as communal gardens, driveways, sports facilities such as a gymnasium. Please note that the freeholder does have the option of granting equivalent rights over such common areas rather than transferring the freehold.
What is the procedure?
It is important that when you come to collective enfranchisement that you understand what the procedure is and that you have a professional advisor that helps you. The procedure is complicated but it is as follows:-
- At least half of the flats in the building, being the qualifying leaseholders, join together and instruct a solicitor and surveyor to act for them. This is not a legal requirement but it is totally advisable as this is an extremely complex process and it is important to have a property valuation.
- Just so you are aware a solicitor is a legally qualified person who is professionally regulated by the Solicitors Regulation Authority or the Law Society.
- The surveyor uses a formula within the 1993 Act, and their own expertise, to calculate the likely premium (price) to put in the formal application to the freeholder. This is the sum that the leaseholders pay in exchange for the property.
- The solicitor will then advise on the best way how to buy the freehold. This is via a Company set up for the purpose and all participating leaseholders would then be members of that company. Every building is completely different and your solicitor would advise you the best way to do this.
- You will also find that the solicitor will advise you to draw up a “participation agreement” between the leaseholders. Which is a binding document setting out the terms of the purchase. subject to the agreement for the leaseholder to provide a contribution towards the premium and to pay towards the cost associated with the process. A participation is a contract between all leaseholders participating together in a joint purchase of a freehold and provides a legal basis for the action. It may, on first consideration, seem a little drastic to bind everything to a procedure but it is in the majority of cases a sensible course of action.
- The legislation within the enfranchisement Act does not provide any guidance on how participants should act together. It simply assumes a purchase through formal procedures of the 1993 Act. The acquisition may be through open market negotiation or formal rules. However, a participation agreement is absolutely critical. The solicitor serves a formal application on the freeholder known as the Section 13 Notice stating the premium proposed to the extent of the property to be purchased and any other terms.
- The freeholder has two months to come back and serve any form of counter notice stating whether they accept the leaseholder’s right to buy. You must appreciate that not all freeholders will be happy to sell their freehold. A right to buy is a right granted to tenants in local authority owned property to buy a lease of the flat or freehold of their house. This is also the case in enfranchisement. The freeholder may agree to the terms proposed including the price. But if the freeholder disputes the leaseholder’s right to buy the freehold then the leaseholders may have to apply to the County Court for a Declaration of their entitlement. It all depends on whether he feels that the figure is correct or the term.
- If a freeholder serves a counter notice and accepts the leaseholder’s right to buy the freehold but disputes the terms, normally the figure i.e. (premium) then the parties have a further two months to negotiate. If the negotiation does not come to fruition they have a further two months to negotiate. If an agreement cannot be reached within this period then there is a “window” of four months within which either party can apply to the first tier Tribunal to rule on the terms. This would then have additional costs involved.
- The parties can continue to negotiate during the four month “window” even if one of them has applied to a Tribunal and the agreement cannot be reached a Tribunal hearing will still go ahead.
- The Tribunal will make a ruling after hearing evidence from both parties. This normally will include valuation evidence from their surveyor/valuers as most disagreements are normally on the premium.
- Once the terms have been agreed or a Tribunal has made a ruling the parties are required into a contract within a specific time limit. These are laid out within the agreement or set out by the Tribunal. A party can apply to the County Court to force any party to enter into the contract if these time limits are not met.
- What are the cost of these?
- It is important that leaseholders understand that they are required to pay the freeholders reasonable legal and surveyors costs as well as their own. These parties place their own costs in Tribunal proceedings if it gets that far. The Tribunal does however have jurisdiction to rule on reasonable of the landlord’s costs.
- You should ensure that you have correct and proper professional advice before starting these type of transactions. Not only will you need a solicitor but also a valuer/surveyor in respect of the purchase. It is so important to get the right advisor and specifically valuers who have local knowledge in the market.