Enfranchisement

NOTES ON ENFRANCHISEMENT

THE LAW:
Your right to purchase the freehold of your flats or maisonettes is within the Leasehold Reform Housing & Urban Development Act 1993 as amended by the Commonhold and Leasehold Reformed Act 2002 (‘2002 Act’).

 

These rights are obtained automatically once you have purchased the property and there is no minimum period of ownership (unlike lease extensions where you have to owned the property for at least two years).

THE BENEFITS OF OBTAINING PURCHASING YOUR FREEHOLD INCLUDE:

  • Increasing the value of your property

  • Enhancing saleability if you decide to sell

  • No more ground rent to pay

  • Control of the management, repairs and insurance of the building

CHECKING ELIGIBILITY:
You should check that the building qualifies and that there are enough qualifying leaseholders who wish to purchase the freehold.

 

You will need at least half the leaseholders to purchase the freehold in order to be able to proceed.

 

For example, if there are eight flats in the building, at least four qualifying leaseholders must participate. Where there are three flats, you will need at least two to participate. Where there are two flats, both must participate.

 

 In order to qualify, the following must apply;

  • There must be a minimum of two flats in the building;

  • At least two-thirds of the flats must be leasehold;

  • No more than 25% of the internal floor area to be in non-residential use

  • The original lease must have been for a term of more than 21 years (the current existing term is irrelevant)


A building will not qualify if;

  • The building is a conversion into four or fewer flats (and not a purpose-built block) and the same person has owned the freehold since before the conversion of the building into flats and he or an adult member of his family has lived there for the past 12 months

  • The freehold includes any track of an operational railway, including a bridge or tunnel or a retaining wall to a railway track

  • The landlord is a charitable housing trust and the flat is provided as part of the charity's functions


Leaseholders do not qualify if;

  • The leaseholder owns more than three flats or more in the building

  • The leaseholder has a business or commercial lease

 

THE PROCEDURE

The Initial Notice:
 

Once you have decided to purchase your freehold, it is always advisable to get a valuation to assess the likely purchase price.

 

Once the valuation has been completed, you will need to instruct a solicitor to serve formal notice on your behalf under Section 13 of the 1993 Act.

 

If you do not have a solicitor acting for you, we would be pleased to recommend several firms who we work very closely with.

Information contained within the Notice must include;

  • Full details of the property to be acquired, including a site or title plan. This must include details of any additional land the leaseholders wish and have a right to acquire, e.g. garages, and any proposed rights of way over land not acquired;

  • a statement showing that the premises qualify for the right of collective enfranchisement on the relevant date;

  • details of any leasehold interests to be acquired, e.g. an intervening head lease, and any flats subject to mandatory leaseback to the freeholder;

  • the price proposed, including a price for any intermediate interests;

  • the full names and addresses of all the qualifying leaseholders in the property and sufficient details of their leases to show that they are long leaseholders. This will require details of the date the lease was entered into, the date of commencement and the term;

  • the name and address of the nominee purchaser (usually the leaseholders or a new company formed specifically to purchase the freeholder);

  • The date by which the freeholder is to provide the Counter-Notice (at least two months after service of the Initial Notice is given)
     

If any of the above information is missing or incorrect, it may invalidate the Notice and you will need to start the process again.

 

Your solicitor should be aware of this and check the Notice carefully to avoid any errors.



The Landlords Counter-Notice:


The landlord must serve his Counter-Notice by the date specified in the leaseholder's Notice. It can;
 

  • Agree your right to the freehold and accept your terms (or propose alternative terms), or

  • not admit your right and give reasons, which will need to be determined by the County Court, or

  • Neither admits or denies entitlement, but state an application is to be made to the Court for an order that the right to Enfranchisement cannot be exercised on the grounds that they intend to redevelop the whole or a substantial part of the premises.


The landlord can refuse to sell the freehold if he can prove to the Court that he intends to demolish and redevelop the whole or a substantial part of the building. This can only apply where at least two-thirds of all the leases in the building are due to terminate within a period of five years from the date of service of the Initial Notice.

Negotiation:
If both parties cannot agree a purchase price or any other aspects of the conveyance (such as costs), there is a statutory period for negotiation of at least two months but not more than six.

At this stage, we will, if required, attempt to negotiate a settlement with the other side’s surveyor. If agreement is reached, matters can proceed in the normal way.

If a settlement is not reached, your solicitor will need to make an application to the First-Tier Tribunal (FTT) for an independent determination on any unresolved issues. These can include;

  • The purchase price of the freehold

  • The costs claimed by the Landlord including reasonable solicitors and professional fees

  • A claim for costs where one side has acted unreasonably


The Hearing:

Once an application is made, the Tribunal will issue directions, which include a timetable for when a contract must be submitted to the tenant’s solicitors and an exchange of valuations between the surveyors.

 

Once valuations have been exchanged, we will be able to advise you on the main areas of disagreement and whether it would be more sensible to try to reach agreement by negotiations or whether it would be in your best interest to seek a determination from the FTT.

 

In cases where we believe it would be in your best interests to obtain a determination of the FTT, we will need to prepare submissions, which include an Expert report from us and a Statement of Agreed Facts and Matters in Dispute.

 

We will then attend the hearing on your behalf, giving evidence a to support our case.

 

We have a wealth of experience in representing clients in the First-Tier Tribunal and handling complex cases.


The Decision:

The FTT will issue their decision, normally within four to six weeks, with a commentary on the hearing and how it arrived at its decision.

 

The decision is binding with extremely limited rights of appeal.

 

Any appeal must be made within 21 days of the decision being published and can only be made with the permission of the FTT. The only realistic grounds for an appeal are on a point of law.


Completion:
Once the period to appeal has expired, the parties have two months in which to complete the transaction.

 

 If this period elapses without completion, then the leaseholder can apply to Court within a further two months requiring the Landlord to meet his obligations.

 

The Court can then force the landlord to complete or it will complete the transaction on their behalf. Any costs incurred as a result of this can be claimed from the Landlord, usually by deduction from the premium.

 

If there is no application for a Court order, the tenants are deemed to have “withdrawn” and the landlord is no longer obliged to complete and can in fact sue for costs.

 

Furthermore, you will not be able to serve a fresh notice for one year which may have cost implications.

 

ABSENT LANDLORDS:
Where the landlord cannot be found the issue of Enfranchisement can be resolved in other ways:

  • if the landlord was a company which has been struck off, or ceased to trade for some other reason, its property may have passed to the Crown through the Treasury Solicitor. Enquiries should be made of the Treasury Solicitor who will usually be prepared to sell the freehold to the leaseholders at open market value. This must be done by negotiation and there is no need (or legal ability) to serve the Initial Notice.

  • if the landlord is a company in receivership, then the Initial Notice may be served on the Receiver; similarly, if the owner is an individual who is bankrupt, the Notice may be served on the Trustee in Bankruptcy. Both the Receiver and the Trustee are acting as landlord for the time being and are equally bound by the 1993 Act to respond, as landlord, in the service of a Counter-Notice and sale of the freehold.

  • if the landlord just cannot be found then the Initial Notice cannot be served. In this case, the leaseholders may make application to the county court for a Vesting Order. If the court is satisfied as to the leaseholders' eligibility for collective enfranchisement, then they will, in effect, sell the freehold to the leaseholders in the landlord's absence. The case will also have to be referred to the FTT for determination of the price.

Talbots Surveyors and Valuers
5 Sandbrook Close
Sunnydale Gardens
Mill Hill, London NW7 3PF

Tel:  020 8906 1122

Alan Cohen, FRICS BSc, FRICS, IRRV
Email:   alancohen@talbotsurveyors.com
Mobile: 07798848381

James Cohen BSc (Hons), FRICS, IRRV
Email:   jamescohen@talbotsurveyors.com
Mobile: 07836744387

Andrew Cohen, MRICS
Email:   andrewcohen@talbotsurveyors.com
Mobile: 07717228625

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