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.
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. 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 called a tenant. 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.
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.
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. Also you have a professional advisor that helps you.
The procedure 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.
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. 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 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.
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.
I want to collect enfranchisement and freehold enfranchisement.
There are a lot of properties that are sold in England that are leasehold flats as the current law determines. This means there is a freeholder in relation to the property who deals with all aspects of the management to include the building insurance and cover. You can as a combined leaseholder participate in a collective enfranchisement in order to purchase the freehold.
What is a leasehold flat?
You are in effect a tenant for a long period of time. This can be anywhere from 99 years through to 999 years. The legal owner of the flat is the person or company who owns the freehold of the property. They then grant a lease dependant on the number of years.
Are there any benefits in owning the freehold to your flat?
If you wish to do so or a group of residents want to purchase the freehold it will ensure if you ever had to extend your lease this could be done on a free basis. It also means that there is no ground rent so you would loose the extra cost.
One of the main reasons for purchasing your own freehold is to ensure that you deal with the building insurance and insurance cover of the building in order to reduce your cost. It is often the case that freeholders/managing agents take a commission in relation to the insurance which can mean that the figure you pay can be substantially more than the actual cost of the insurance. We specialise in building insurance for this type of cover and can you give a quote with the right cover and right price. Don’t hesitate to contact by clicking here.
Owning your own freehold of your flat means you will actually deal with the building and you will have control over your own home.
This means you will be no longer required to pay the ground rent.
You will also be in charge of the service charges for the property that deal with the maintenance, landscaping, cleaning common areas and wear and tear of the building. The freeholder has the right to choose who they employ to complete this service so if you buy the freehold you can deal with your own management.
In order to summarise the key benefits of buying your freehold are;
- The qualifying group residents might be able to grant themselves a new lease to extend as they wish.
- The flat will be easier to sell.
- You gain control of the management of your building.
- You can reduce your building insurance costs, contact us for a quote 01273 827090.
Price payable for the freehold
The price payable for the freehold can depend on various different factors including the market value of the individual flats and the length of their leases. It is therefore so important that you understand exactly what is involved. The price payable for the freehold may be higher than the leases have left to run. For instance if the leases are over 80 years left to run then the cost may be less than if they were 80 years and below.
You would need to instruct a valuer with expertise in this area to provide a price on the freehold. We suggest you do this before the intimal notice is served. The law requires the price to be in the intimal notice to be realistic so a valuation of this is needed from the outset.
It will also mean you will be able to know exactly what liability you will have. A valuer is more than likely also to be required to do negotiations between the freeholders and leaseholders. If you have to go to the leasehold valuation tribunal then they would need to give evidence if agreement cannot be reached.
Are there other costs payable?
You may find there are other fees that will also be occurred. These may be fees reimbursed to the freeholder. These include the cost of checking whether the leaseholders have the right to acquire the freeholder, the cost relating to the transfer and the cost paid to the freeholder for a valuer to give his advice on their freehold.
The freeholder cannot recover any costs from leaseholders in connection with a leasehold valuation tribunal.
We understand it can be daunting for lessees to decide to purchase their own freehold. Not necessarily not everyone wishes to participate or be involved in the transaction. People may like the idea of purchasing their own freehold but don’t have the time to deal with it. You can always nominate a person to deal with it on your behalf and work towards bringing your costs down. It is always going to be a benefit for you owning the freehold as it puts you in control of everything on the building and your property. We can give you a quote for your insurance with a view to reducing this for you but still maintaining a great cover. Our advice is always to take independent legal advice.