If you own the freehold of one or more block of flats, you will know how many things there are to keep track of and how there are also many legal issues and problems that can occur between you and the leaseholders. However, have you considered what would happen if the leaseholders got together and wished to acquire the freehold?
This is our quick guide to freehold or collective enfranchisement – or freehold purchase as it is also known – and what you will need to know and do as the freeholder.
Freehold Enfranchisement: What Is It?
Since the introduction of the 1993 Leasehold Reform Act (amended), leaseholders who have a flat in a building now have the right to join together and ask the landlord to sell them the freehold. If this then goes through, the previous leaseholders who join in the joint freehold purchase will become the new freeholders, and they will own the block and be able to run the building as they wish.
However, for this to happen there are certain requirements that need to be fulfilled, the four main criteria being:
1) The block must have a minimum of two flats – if there are only two flats, both leaseholders must join together in the enfranchisement
2) if there are three or more flats, then a minimum of 50% of leaseholders must participate
3) It can only happen in a building where at least 75% of the floor area is being used for residential purposes; and,
4) It can only happen if two thirds of the flats are let to qualifying leaseholders.
If these criteria are met they can then get together and inform you of their intent to become the freeholders though an Initial Notice.
What Do You Need To Do?
After you have received notice of the intended enfranchisement, you will have to serve a Counter-Notice by the date that is specified on the Initial Notice. The Counter-Notice should state whether you agree to the terms, disagree to the terms (you must state your reasons), propose alternative terms (such as a difference the in cost), or neither admit nor deny entitlement as you are intending to redevelop the property.
What Will Happen If You Do Not Agree To The Terms?
You can disagree with the proposed terms if you wish to propose your own, or if you are planning on redeveloping either the whole or part of the premises. However, this rule only applies if at least two-thirds of the building’s leases are due to terminate within five years of the Initial Notice being served.
If you have served a Counter-Notice and terms still cannot be agreed upon then the case will be escalated to the Leasehold Valuation Tribunal after two months. This tribunal will then review the issue and decide on an appropriate course of action for that situation. If you intend to issue a Counter-Notice you should be aware that you must do so within the specified time period or the tenants will be able to apply for a County Court Vesting Order – this could end up leading to the tenants acquiring the freehold under the original terms as detailed in the Initial Notice without any alternative terms being considered.
Seek Legal Help Before The Enfranchisement Process Starts
Regardless of whether you intend to agree to the terms put forward by the leaseholders in the Initial Notice of not, it is advisable to seek professional advice from a specialist enfranchisement solicitor to ensure that you are doing everything correctly. As only a very small number of solicitors actually specialise in freehold purchase work, you should first research law firms before instructing a solicitor to advise and represent you on the enfranchisement procedure. The good news with regard to this is that the leaseholders must pay all the reasonable legal costs of the freeholder
Tim Bishop is senior partner of Bonallack and Bishop – lawyers who specialise in collective enfranchisement for freeholders and leaseholders alike throughout England and Wales. For more information about freehold purchase, call them on 01722 422300 or visit their specialist websites at https://www.enfranchisementsolicitors.co.uk and https://ww2.freehold-purchase.co.uk
