Buying the freehold interest for your property is a legal right under the Leasehold Reform Housing and Urban Development Act 1993 (“the 1993 Act”) (for collective claims and lease extensions). Freehold purchase is also known as Collective, Leasehold or Freehold Enfranchisement.
Want to know find out more about Buying Your freehold? Call our specialist solicitors on FREEPHONE 0800 1404544 for FREE initial phone advice – with no strings attached.
What is Freehold Purchase?
This occurs when a group of tenants who own flats in the same building collectively buy the freehold interest from the freeholder. Provided that certain conditions are met then, under the 1993 Act, the leaseholders can force their freeholder to sell the freehold of their block to them.
There are numerous reasons for wanting to buy the freehold interest of their block. Most commonly a leaseholder wants to get rid of their freeholder, and together with some or all, of their fellow leaseholders, take over ownership of their own block. Furthermore, those leaseholders who participate in purchasing the freehold interest can grant themselves a lease for 999 years with no ground rent payable.
The other route to buying the freehold of your block is through the Right of First Refusal – if your freeholder is looking to sell up.
Click here to read about the Right of First Refusal
Buying the Freehold interest in your block – the criteria
For a group of tenants to exercise their freehold right to buy, the following conditions must be satisfied:
- There must be at least 2 flats in the building; and
- At least 2/3rds of those flats are let to ‘qualifying leaseholders’ (these are leaseholders whose lease was originally granted for 21 years or more;
- At least 50% of the leaseholders in the building want to participate in the enfranchisement; and
- A building will be excluded from these rights if there is more than 25% of the internal floor area (excluding communal areas) devoted to commercial uses.
Unlike a stautory, or formal, lease extension, there is no requirement for the tenants to have owned their flat for at least two years.
Exercising your freehold right to buy becomes more expensive the fewer the years left on the leases of the flats in the building. To work out how much longer is remaining on your lease, check the dates of your Lease carefully. For example, if the lease commenced in 1978 and it is 99 years long, then it will expire in 2077, therefore in 2020 it will have approximately 57 years remaining, and in 2021 it will have approximately 56 years remaining, and so on.
Marriage value and the 80 year rule
If you were to extend your lease, you should be doing so before the lease has less than 80 years remaining to avoid paying a ‘marriage value’ premium. The same rule applies to buying your freehold – because the marriage value premium is payable any of the leases with less than 80 years left which belonging to participating leaseholders.
If your lease has less than 80 years left to run then you should either extend it sooner rather than later, or if other leaseholders in the building are looking to extend their lease in the future then you may be able to join together and buy the freehold, and this may be more cost effective for you.
Buying the freehold of your house
The situation is slightly different for the enfranchisement of a single house, although this is fairly unusual.
Click here to find out how to buy the freehold of your house.
Knowing the Difference Between Leaseholders and Residents
It’s important to remember that inviting the residents of your block of flats might not help you identify who the leaseholders are. Many properties may be owned by landlords, and it is the owner of the flat rather than the resident who has to take part in the leasehold purchase process.
Getting Started – Send Out an Invitation
Unless your block is a very small one, the most difficult job is getting and keeping support from enough leaseholders to make the whole process practical.
Remember though that the whole freehold purchase process is much easier when you are dealing with smaller blocks of flats. If, for example, there are only four flats in your block, you only need one other leaseholder to join you in order to reach the 50%. If on the other hand you have 100 flats in the block, getting another 49 leaseholders to agree to join the process, and then keeping them involved until the process is complete, is no easy task.
And with everything but a very small block, it’s quite a good idea to start off by putting together a formal invitation and send it to all of the leaseholders explaining collective enfranchisement and asking them to get involved.
There is no legal requirement to send out this sort of invitation. But experience shows that it’s often a good way of kick starting the process and getting in touch with all of the leaseholders quickly.
It also keeps things formal, which may lay to rest some people’s fears about the legality and financial implications of buying the freehold.
Your invitation – What To Include?
If possible, then your invitation might include the following information:
· Exactly what is being proposed
· The benefits of freehold purchase
· Deadlines for getting involved
· The deposit which should be paid
· Estimated costs for completing the process. It should be made clear that estimates are just that, and that the final cost could vary and will only be decided once the freehold purchase has completed.
Making sure that every leaseholder gets the same invitation at the same time can help avoiding potential disputes, as everyone is deemed to be treated in the same way.
Sometimes this might not be the best course of action, e.g. blocks where some of the flats are occupied by relatives or friends of the freeholder. Issuing the same invitation to all people in these circumstances runs the risk of the freeholder being provided with some confidential information regarding the freehold purchase.
Hold a Leaseholders’ Meeting
At this stage it is also a good idea to hold a meeting for the leaseholders who still have reservations or are yet to make up their minds to allow them to ask questions or get more information before deciding one way or the other. This meeting often encourages more leaseholders into signing up.
If you have a large block in particular, it’s well worth considering having an experienced freehold purchase solicitor present to make sure that all advice given is accurate and impartial and to answer any technical or practical questions.
Having a solicitor present can also provide leaseholders with peace of mind – they can be sure that they are getting accurate information from an experienced solicitor with plenty of experience of enfranchisement. This can help to encourage more leaseholders to join the freehold purchase process.
If you’re looking for a solicitor to attend a meeting in this way – give us a call. This is a role we regularly play.
In the initial stages of freehold purchase, it is important to stay focused on the end benefits of the process.
Lay out each of the different stages in the process clearly along with the associated costs, and make sure that the other leaseholders can see that the process is transparent.
If you can allow your fellow leaseholder to see the clear benefits of buying the freehold, and explain the process and its requirements to everyone, the chances of seeing the project through to a successful conclusion are much higher.
What is a nominee purchaser?
Often when tenants collectively enfranchise their block, they will set up a company to own the property as the ‘nominee purchaser’. All participating leaseholders then become a member of the company, and a director if they wish. We recommend that you consider setting up a company where there are three or more leaseholders involved in this process.
How long will my Buying My Freehold take?
If your freeholder is offering to sell the freehold then the purchase of your block can be completed in as few as three months.
However freehold acquistion, or enfranchisement, whereby you have to force your freeholder to sell the freehold to you, takes longer, as your freeholder will probably want to enter a period of price negotiation. If you still can’t agree a price, then you may have to apply to the courts or the First-Tier tribunal – Property Chamber (Residential Property) [which prior to July 2013 was known as the Leasehold Valuation Tribunal or LVT] which can extend the time needed to to buy your freehold – thankfully this remains unusual.
The process of buying your freehold can seem like long and difficult. The process takes about a year, but it can be longer or shorter depending on your circumstances.
Do I need a participation agreement?
In short, a participation agreement is a llegally binding contract committing leaseholders to the entire enfranchisement process. Whilst it may not be necessary if your block is a small one and there are therefore few leaseholders involved, it is frankly desirable and almost essential with medium size and larger blocks.
Click here to read more about Participation Agreements
What is an Enfranchisement Notice?
The first step in the process is for the participating leaseholders to give a formal written notice to the freeholder that the leaseholders want to buy their freehold. This is called the Enfranchisement Notice or Initial Notice and starts the whole legal process off.
It lets the freeholder know that the leaseholders want to buy the freehold of their block, and indicates what price they are offering for the freehold.
There are strict rules applying to the formal process of freehold purchase – so it’s really important for the leaseholders in particular to keep a clear timeline – to make sure that everything is running to time and to avoid delays.
The freeholder has two months to reply to the Enfranchisement Notice, and if they misses that deadline, the participating leaseholders become entitled to buy the freehold of their block at whatever price they offered in the Initial Notice.
Click here to read more about the Freehold Purchase Section 13 Notice
The Counter Notice
Usually the freeholder responds with service of a Counter Notice – in which the freeholder formally acknowledge that the leaseholders want to buy the freehold, or (and this is pretty rare) states that the freeholder doesn’t believe that the applicants are entitled to buy the freehold. If the freeholder is arguing that the leaseholders don’t qualify for enfranchisement they must state the reasons for this.
However the freeholder accepts that the leaseholders have the right to buy their freehold, then they must either accept their offer, or put forward a counter offer. Don’t worry if this counter offer is a lot more than the sum proposed in the Enfranchisement Notice – it’s a common tactic among freeholders in order to try to scare off leaseholders.
Buying your freehold – negotiating
If the freeholder does make a counter offer, negotiations usually start. This is when you really need a surveyor who specialises in enfranchisement valuations on your side – to go to with the freeholder’s legal team over the price you’re going to have to pay to buy the freehold of your block.
If the unusual happens and the two sides cannot come to an agreement, the leaseholders can refer the case to the First-Tier Property Tribunal. The Tribunal will then decide on the property’s value and the price to be paid for the freehold purchase.
There are strict deadlines for this too – any tribunal application has to be made no sooner than two months and no later than six after the Counter Notice was due. If this doesn’t happen, any claim is considered to have been abandoned – this means you are going to have to wait 12 months before starting the process again, right from the beginning.
Be warned – though only a tiny percentage of enfranchise applications actually make it all the way to tribunal, it can take three months for a case to be heard in the Property Tribunal.
However once the tribunal has made its decision, if it’s in your favour then the work to buy the freehold of your block really begins. The process then moves more quickly – in particular the freeholder has to draw up a contract of sale and give it to the participating leaseholders within 21 days of the Tribunal decision. Either party has the right to appeal to the Lands Tribunal, but will need written permission from the First-Tier Property Tribunal to do so.
Click here to read more about the costs of your freehold purchase
Avoiding delay when buying your freehold
The most common reason for delays in enfranchisement is just trying to get enough people organised initially to buy the freehold, and to keep them all on board throughout the process.
It’s easy to underestimate just how difficult this can be, especially when you live in a larger block with lots of leaseholders.
Appointing your solicitor – the need for a specialist
To proceed with buying the freehold you should instruct an experienced freehold purchase solicitor as soon as possible. Your solicitor will assist you with instructing a suitably qualified valuer/surveyor to calculate the price of the freehold. You solicitor will serve the required claim notice on the freeholder informing him/her of your offer and intention to buy the freehold. It is important that you instruct a solicitor to prepare this notice as there are strict requirements regarding the content of the notice and, if these requirements are not met you may potentially ruin your chances of acquiring the freehold at this time, or you may have a costly and lengthy legal battle to determine the validity of the notice. The freeholder will then have two months in which to serve a Counter Notice either admitting your right to acquire the freehold, or denying your right. Your freeholder may only deny your right for a statutory reason, not just because he/she wants to keep the freehold.
Freehold enfranchisement can be quite complex and disagreements between tenants often arise. It is crucial therefore that you seek professional legal advice before embarking upon a freehold purchase in this manner. Along with serving the notice with intention to purchase, your solicitor will draft any necessary agreements between the tenants to facilitate a successful nominee purchaser.
How long will my Buying My Freehold take?
If your freeholder is offering to sell the freehold then the purchase of your block can be completed in as few as three months. However freehold acquistion, whereby you have to force your freeholder to sell the freehold to you, takes longer, as your freeholder will probably want to enter a period of price negotiation.
If you still can’t agree a price, then you may have to apply to the courts or the First-Tier tribunal – Property Chamber (Residential Property) [ previously known as the Leasehold Valuation Tribunal] which can extend the time to one-year or upwards – thankfully this remains unusual.
Thinking of Buying the Freehold of your Block? Contact our Specialists
Buying your Freehold is complex and you will need expert legal advice and an accurate valuation of the cost of enfranchising your block from a specialist surveyor.
Our specialist teams can help you both with the expert legal advice you need, and with the appointment of a specialist surveyor local to you, wherever you live.
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