The Freehold Right To Buy – am I eligible?
To Buy Your Freehold (also known as Collective or Leasehold Enfranchisement) you must satisfy the following requirements to be a ‘qualifying leaseholder’:
- The original lease must have been at least 21 years long; and
- It must be residential (as distinct from a commercial lease)
Additionally your building must satisfy the following conditions:
- There must be at least 2 flats within the freehold;
- No more than 25% of the building must be used for non-residential purposes;
- At least 2/3 of the flats must be let to qualifying leaseholders (see above); and
- At least 50% of the flat owners must participate in the Enfranchisement
How long does it take to Buy a Freehold?
The Purchase of a Freehold with no complications can take as little as 3-4 months. However the timescale can increase depending on how long the freeholder takes to respond to the notice, whether your freeholder agrees to sell the freehold and whether you need to create a company nominee purchaser (see below).
The transaction is also likely to take longer if there are long periods of negotiation, disagreements between the participating tenants and especially if you are forced to apply it to the First-Tier tribunal – Property Chamber (Residential Property) [ previously known as the Leasehold Valuation Tribunal] to get your freeholder to sell.
If I sell my flat, do I have to sell my share of the freehold?
Yes – if you sell you flat then you automatically sell your freehold interest as well. You can however rent out your flat (subject to any mortgage restrictions) and still keep your share of the freehold.
Is it worth getting together to exercise a Freehold Right to Buy?
Yes. Getting together to exercise your Freehold Right to Buy means that as a group you take control of the building and its management.
You can then, if you choose, take on responsibility for managing your building and, in addition, you can lease your flat back to yourself on favourable terms without needing to pay any ground rent.
How much will exercising my Freehold Right to Buy cost?
The cost of buying your freehold involves the following:
- Your own legal costs and disbursements;
- Your surveyor’s fee in carrying out a valuation of the price of the freehold and in any negotiation of the premium;
- Your freeholder’s reasonable legal and valuation costs (if you do not agree that such costs are reasonable then you are able to apply to the Leasehold Valuation Tribunal);
- The price payable for the freehold; this is the aggregate sum of:
- The income received from the ground rent during the remainder of the term; and
- The reversionary value of the freehold on expiry of the leases (when a lease expires the flat effectively reverts back into the freehold); and
- The marriage value. This is the increase in the value of the flat after acquiring the freehold (effectively classed as ‘marrying’ the leasehold and freehold interests.
- The value of any other interest; e.g commercial property if the building has any commercial unit(s); and
- Any other compensation; e.g. the reduction in value of any other neighbouring property owned by the freeholder where he will be unable to develop the site due to the freehold sale, or the loss of opportunity to build on the roof of a block of flats.
What responsibilities do I get if I Purchase the Freehold?
Essentially, in Buying the Freehold you become the new freeholder or freeholders (if collective) for the building. Therefore you become responsible for the day-to-day management and running of the property. This involves collecting service charges, doing any maintenance, paying out for large building works and insuring the property i.e all of the actions and services that the out-going freeholder was responsible for carrying out under the terms of the lease and statute.
What happens if the freeholder is absent when I serve my freehold right to buy notice?
If your freeholder is an individual and cannot be found, then a purchase notice cannot be served on him/her. Instead you will have to apply to the County Court for what is known as a Vesting Order – under which the Court orders the First-Tier Property Tribunal [ previously known as the Leasehold Valuation Tribunal or LVT] to value your property.
After receiving the valuation, if the Court is satisfied that the participating leaseholders and the properly are eligible and meet the criteria, it can effectively sell the freehold interest to the tenants or tenants on the freeholder’s behalf.
However if the freeholder is a company which has ceased trading, the property may now belong to the Crown. Enquiries must be made to the Treasury Solicitor who has the authority to sell the freehold at market value. Alternatively, if the freeholder company has gone into liquidation, then the tenant can serve the purchase notice on the Trustee in Bankruptcy instead of the freeholder.
What is a nominee purchaser?
A nominee purchaser is someone who, in a joint Freehold Purchase, puts their name on the notice to the freeholder. This person then becomes responsible both for exercising the freehold right to buy and for the subsequent management of the building. There are no laws governing how the nominee purchaser is selected.
As a result, when exercising their right to buy their freehold, it’s common for a group of tenants to create a company to use as a nominee purchaser. The tenants usually become shareholders and/or directors of the company. It’s vital however that such a company is created before the notice is served upon the freeholder.
Our freehold purchase company – will standard Articles of Association do?
Every limited company must have articles of association – documents which set out the rules the officers of the company must follow, and regulate the rights of shareholders. They are very important documents, especially when there is no written shareholders’ agreement.
Often however when the leaseholders get together to buy the freehold of the block, getting the right articles of association comes way down the list of priorities. As a result, such companies sometimes end up with template or default articles – standard articles which contain none of the specifics related to freehold companies.
Without the right articles in place, serious and costly problems can crop up at a later date.
Properly drafted company articles, designed for the management of your particular block, are therefore really important – and comparatively cheap.
Our Articles of Association – what issues should they cover?
Some of the key things to consider are:
• Will the new freehold company be allowed to collect service charges and ground rent from leaseholders or tenants?
• Will it manage and administer communal areas, provide services and look after car parks?
• Will the company insure the property, or will it build up cash reserves to carry out maintenance by getting contributions from its members?
• What is the process for selecting and removing the company directors?
• Should non-leaseholders be barred from serving as directors or members?
• Will members be able to force directors to follow a certain course of action?
• Will there be limits concerning when a member is allowed to vote, for example when they are in debt to the company?
• What is the process for transferring shares to new leaseholders?
• Is there provision for the transfer of shares to a new leaseholder without the need for consent of all the other leaseholders first?
• What is the process for dealing with disputes?
• Should an alternative resolution process be considered before litigation?
Irrespective of whether the freehold management company already exists or is just being set up, the most effective way of avoiding problems in the future is to make sure everyone involved is fully aware of the contents of the articles of association and that they meet the requirements of the property. If they are found to be lacking, take action to change them immediately.
The need for a specialist solicitor
Don’t undertake the freehold purchase process lightly. Even groups with enthusiastic leaseholders can make mistakes, and freeholders with strong legal teams can exploit this. In order to make sure that your chances of a successful enfranchisement are as high as possible, it is vital that you get advice from a solicitor who has lots of knowledge about the collective enfranchisement process.
There are over 140,000 qualified solicitors in England in Wales – but only a few, like our team of experts – routinely carry out collective enfranchisement work.
Thinking of exercising your Freehold Right To Buy? Call us today
It’s so important to get good legal advice when it comes to Freehold Purchase.
Wherever you live, we can help you. Our team are genuine specialists – freehold purchase and lease extension is all they do.
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