BUYING YOUR FREEHOLD
BUYING YOUR FREEHOLD
Under the Leasehold Reform Housing and Urban Development Act 1993 (as amended) a qualifying majority of leaseholders can compel their landlord to sell the freehold to them. The process is also known as enfranchisement. Once the purchase of the freehold is completed the tenants will own their leasehold property and a share of the freehold from which their leases are formed.
Why should we enfranchise?
• A lease is a wasting asset and with every year that passes it gets shorter. Eventually, your flat will become unmortgagable and difficult to sell. This applies to leases with less than 80 years left to run. You can also find it difficult to sell a lease with 80-85 years left. There are also some lenders who require lease to have at least 75 years remaining before they will agree to lend.
• If you enfranchise you can grant yourselves extended leases
• You want to control the management of your building
• No ground rent will be payable
Do we qualify for enfranchisement?
• The “qualifying tenants” must own at least 2/3rds of the flats in the building – to qualify the leases must have been originally granted for terms of at least 21 years
• A qualifying tenant cannot own more than 2 flats in the same building
• The participating tenants must be qualifying tenants and must own at least half of the flats in the building (and not less than 2 flats)
• A building with 4 or less flats and a “resident landlord” will not qualify
If you do not qualify to purchase the freehold, you may still be able to extend your lease
Do we have to invite all the qualifying tenants to participate?
At present, no. Provided that over half of the qualifying tenants wish to partake in the purchase the action can go ahead
Can our freeholder stop us enfranchising?
Only in very exceptional circumstances and, even then, usually only with the consent of the court
Our freeholder is missing (or dead or bankrupt) – will that stop us enfranchising?
No.
How much will we have to pay for the freehold?
There are a number of varying factors that will affect the premium. For this reason only a surveyor with the appropriate skill and experience can advise you as to the likely range of prices you can expect to pay. . It is therefore essential that you have a proper valuation as the figure you propose in your initial notice to your freeholder must be realistic. For example, you cannot simply suggest a very low figure and then negotiate later.
Will you have to pay the freeholder’s costs?
The costs you have to pay are stipulated in the 1993 Act. Once the participating tenants serve their initial notice the freeholder becomes entitled to his costs for ascertaining the tenants right to enfranchise (checking the titles of their flats and the validity of the notice), together with his surveyor’s valuation fee and the costs. He is not entitled to his surveyor’s negotiating fees or for any work carried out in connection with any application to the Leasehold Valuation Tribunal (LVT). For a block of up to 4 flats, you should budget for a total costs not exceeding approximately £2,500.00.
How long will it take to complete the enfranchisement?
In very broad terms, the enfranchisement process is as follows
• We collate various documents and information and prepare the initial notice for signature by the participating tenants. This process usually take about one month
• Once the initial notice has been served on him, the freeholder has a minimum of 2 months to serve his counter-notice
• If the freeholder does not agree all of the terms proposed in your initial notice, there is a 2 months negotiating period, during which time you and your freeholder will normally try and settle any outstanding matters
• If the outstanding matters are still not agreed, you can apply to the LVT for a determination at any time up to 6 months after the service of the freeholders counter-notice
• The LVT hearing usually takes place within a couple of months of the application
• The LVT will then take a further couple of months to give its determination
• Completion usually takes place about 2 months after the LVT’s determination
The length of the process will all depend upon your freeholder. A sensible freeholder, sensibly advised, will be looking for a quick completion. However, if he is poorly advised the whole process could take a considerable amount of time. The majority of matters go no further than the negotiating period. In a few matters it becomes necessary to issue an application to the LVT. Only occasionally does a matter go all the way to a full hearing.
Who will be registered at the Land Registry as the Freeholder following completion?
Under English Law only 4 individuals can be registered at the Land Registry as owning the freehold property. It is therefore common and recommended (for buildings with more than 2 flats) to form a freehold management company. The freehold will be transferred to the company and each tenant will own a share in the company and have the same rights as the other owners. Tenants will also have to be appointed to roles within the company such as directors and company secretary.
To discuss your requirements or to find out more contact Chris Sarsfield (cjs@meaby.co.uk) or Peter Russell (pjcr@meaby.co.uk) on 020 7703 5034
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any
