Do you own leasehold property?
If you are a residential leasehold flat owner, did you know that you have the legal right to join with other tenants to force your landlord to sell you the freehold of your block? This right is known as Lease Enfranchisement – also referred to as Freehold or Collective Enfranchisement, and Freehold Purchase.
In buying the freehold of your block, you actually become both landlord and tenant and as a result become able to grant yourself a new 999 year lease on your flat.
If you want to gain more control over your leasehold flat then there are 2 avenues open to you. Either you can join forces with other leaseholders to apply for the ‘right to manage’ the building you live in, or you can start the leasehold enfranchisement process whereby you buy the freehold.
Our experienced 5 strong leasehold team specialise in enfranchisement and lease extension not only locally in Wiltshire, Hampshire and Dorset but also for leaseholders and freeholders throughout England and Wales – from our offices in Salisbury, Fordingbridge, Andover and Amesbury. We are therefore not just the most specialist team in those three counties – but one of the leaders nationwide, offering city quality advice on enfranchisement – at local prices.
Also, because we carry out so many lease extension and enfranchisement every year, we have developed a panel of specialist surveyors – and if you’re looking to enfranchise, we can put you in touch with, and instruct if you wish, the right surveyor to value your enfranchisement premium.
Lease Enfranchisement – what’s in it for me?
Whilst leasehold enfranchisement offers various advantages there are also important responsibilities and considerations to think about. The pros and cons are outlined below.
- You stop the value of your flat deteriorating – buying the freehold enables you to grant yourself a very long lease, for up to 999 years – and what’s more, you can do this at what’s called a ‘peppercorn rent’ – so your lease becomes, in effect, rent free
- You take over the management and maintenance of your block – enabling you to avoid overly expensive service charges. Disputes over service charge levels are among the most popular reasons for lease enfranchisement
- You can provide your family with a more secure inheritance
- The value of your block will probably increase – some purchasers avoid purchasing leasehold property
- Remortgaging your flat will probably become easier. Not only do some mortgage lenders refuse to lend on flats with less than 60 to 70 years left on the lease, but many prefer the increased security that freehold, as distinct to leasehold, property offers
Leasehold enfranchisement – the disadvantages
• Even as a freeholder, conditions will be attached to your lease. It is therefore sensible to ask a specialist solicitor to update a badly constructed lease or one with unfair terms.
• You will need co-operative neighbours because whilst collective enfranchisement is easy in a block of 2 or 3 flats in which everyone gets on, it can be very difficult in much larger blocks. Drawing together an organised and co-operative group of leaseholders to form a freehold company is often easier said than done.
• Disagreements are likely both among freeholders and between freeholders and leaseholders who did not sign up to the collective enfranchisement. Service charges are often the cause of these disputes with people taking different views on what is reasonable.
• As the freeholder you will be responsible for forming the freehold company, servicing the property, keeping the accounts and ensuring that there is adequate insurance. This can be time-consuming and stressful and if done incorrectly can damage property value.
• It can be an expensive process (however the added property value can usually make up for this).
• It can be time consuming and in most cases will take at least a year. However if your freeholder employer does not cooperate it can take far longer – see below
Enfranchisement – Do I Really Need A Specialist Solicitor?
Enfranchisement is a complicated area of law and the formal or statutory route involves a specific process that you need to follow – this process has a strict timetable you need to follow.
However the vast majority of solicitors rarely, if ever, come across enfranchisement [also known as leasehold or collective enfranchisement, or freehold purchase] – so it is really important to instruct a solicitor who really understands enfranchisement.
If you instruct one of our team, we will help you in the following aspects of the enfranchisement process;
• We will check if you and your fellow tenants meet the eligibility requirements necessary to proceed with buying your freehold
• We can advise you on setting up a company to manage the freehold and help you in registering that company with Companies House, as well as offering guidance on your responsibilities when it comes to running your company.
• We can introduce you to, as well as instruct on your behalf, the right surveyor with plenty of enfranchisement experience who will make sure you get the right valuation of your proposed freehold purchase.
• We can draft your Initial Notice that we will then serve on your landlord to start the formal enfranchisement process
• We will respond on your behalf to your freeholders Counter Notice (or their failure to produce a Counter Notice) and work with your surveyor if necessary to negotiate on the premium you will need to pay for the freehold
• If necessary, we can represent you at the First Tier Property Tribunal if you have difficulties getting your freeholder to cooperate or agree on a reasonable premium for the freehold
When is the right time to buy the freehold of my block?
Savvy tenants know the answer to this one – now.
Why? Broadly three reasons
- Firstly the price you have to pay your freeholder to enfranchise increases as your lease gets shorter.
- Secondly, when residential property prices are continuing to rise, however slowly – this also increases the level of premium you’re going to have to pay for enfranchisement
- Thirdly the sooner you take control of your block, the sooner you can make sure it’s managed properly with maintenance and other costs being subject to proper scrutiny – after all, no one is going to look after your money as well as you would.
Collective enfranchisement – am I eligible?
The first step is whether or not you are eligible to purchase the freehold of your block.
- Do you have what is known as a long lease – that is, a lease that was initially granted for more than 21 years.?
- How many flats do you own – you are also not allowed to own any more than three flats in the building – if you do, you won’t qualify under the rules of leasehold enfranchisement.
- If you live in a building with only two flats, then both of the leaseholders need to be on board. If you live in a block of flats, then no more than 25% of the building must be used for non-residential purposes and over half of the tenants must be on board before you embark on the process of freehold purchase.
Enfranchisement – The Costs
If you decided on enfranchisement then it is important that you and your fellow participating leaseholders pay close attention to the costs involved.
Obviously, it is hard to predict exactly how much buying your freehold will cost as it varies according to your property. But there are three particular areas of costs you do need to keep an eye on.
- Getting the right valuation
One thing you should always budget for is a valuation report of the premium you need to pay from a specialist surveyor plenty of experience of enfranchisement.Getting a report from the wrong surveyor, or doing without such specialist valuation entirely could cost you dear – here at Bonallack and Bishop, we have developed a panel of valuers who regularly carry out lease extension and enfranchisement valuations and who really know what they’re doing – and we are happy to instruct one of those on your behalf.
- The legal costs of enfranchising
You will have to pay your solicitors costs. These include the cost of serving notice on the current freeholder, setting up a new company to manage the freehold, the cost of transferring the freehold to that new company and preparing new leases.It’s also unlikely, but not impossible, that you may have to pay for additional legal costs for representation at the 1st Tier Property Tribunal if your freeholder is uncooperative and reluctant to sell you the freehold of your block
Finally, you will also have to pay is your freeholder’s “reasonable” legal costs, which will include their legal fees, the cost of their own valuation and his or her conveyancing costs.
- Costs of the new freehold company
Also, and this depends on the size of your block and your fellow leaseholders, once you have set up a company to manage the freehold, you may decide to employ managing agents to subsequently manage the building on behalf of you and your fellow leaseholders
Selling your flat during enfranchisement
It is possible to sell your flat whilst in the process of leasehold or collective enfranchisement – as buying your freehold is more commonly known. However if you have already signed the participation agreement you will need the buyer of your flat to buy out your share of the purchase cost. Owning part of the freehold is usually very attractive to prospective buyers.
Extending your lease as a freeholder
Do not make the mistake of thinking that becoming a freeholder does not mean that you have to extend your lease. It is still crucial that you extend your lease but thankfully this is much easier as a freeholder because you only need to cover legal fees.
You should extend your lease to 999 years as soon as possible in order to protect the value of your property.
In order to extend your lease, you must obtain the signatures of the other freeholders. These freeholders would in theory be able to ask for a fee for the leasehold extension, however this is unlikely to be in their interests be you could then charge them when they require the same service.
Buying a share of the freehold after enfranchisement
Those residents who were not party to the original enfranchisement will not simply acquire a share of the freehold based on their ownership of their flat. In effect, those who live in the block but are not freeholders are tenants of the newly established freeholder company.
However, it is often in the freeholders’ interests to allow flat owners to join in later.
Extending your lease during enfranchisement
Leases cannot be extended whilst the enfranchisement process is ongoing. Those hoping to extend leases must wait until the new freeholder company is formed in order to extend their leases and then buy the extension from these new freeholders.
What if I can’t find the freeholder
It is often advisable to buy the freehold because the freeholder cannot be found or is completely disinterested in the freehold. Sometimes the freeholder will be dead or will have relocated overseas. Where this is the case, flat owners should apply for a vesting order from the courts.
How long will my collective enfranchisement take?
If the freeholder agrees a price for sale of the reversion [i.e. his freehold interest], and if the other leaseholders agreed to share the costs with you, exercising your right to enfranchise can take as little as two months – at least in theory, though this really works in practice.
Don’t underestimate, however, the practical problems in both getting support from all your fellow tenants for the whole freehold enfranchisement process and keeping that support going over the months it takes for the collective enfranchisement to be completed.
However without agreement from the freeholder, your application can take much, much longer –, an application to the First-tier Property Tribunal [previously known as the Leasehold Valuation Tribunal] is required to force the landlord to sell and to set a price. This can significantly delay things and can take up to 12 months – or more.
However, fortunately, applications to the First-tier Property Tribunal are relatively uncommon and 6 months is the average length for the whole Leasehold Enfranchisement process.
Are you a tenant wanting to buy the freehold of your block?
If so, you really need specialist advice. Because this is a highly intricate area of law and very few property lawyers come across it more than once in a blue moon. In contrast, we have a team of specialist lease enfranchisement and lease extension solicitors – that’s all they do.
Before instructing another solicitor – ask them how many enfranchisement and lease extensions they completed in the the last year. We are currently expecting to do around 350 of these transactions in the current 12 months, and have completed many thousands in the last 20 years.
What is an enfranchisement notice?
The lease enfranchisement notice [which is often referred to as a section 13 notice or initial notice] is a document which is served by the leaseholders owners on their landlord – the document informs the landlord that tenant are planning to jointly conduct a collective enfranchisement – or freehold purchase as it is often known.
In particular the notice should contain an offer price to buy the freehold, along with a list of all of those participating in the enfranchisement and should also set out the deadline date by which a reply from the landlord must be received. This document effectively starts the whole leasehold enfranchisement process,
Tips For The Successful Enfranchisement Of Your Building
If you’re a tenant looking for a freehold purchase, here are some practical tips on how to successfully enfranchise your block:
• It is usually be more cost-efficient for leaseholders to buy the freehold rather than simply extend your own lease – as you can extend the term of your lease to 999 years and can also reduce the ground rent significantly.
• Call a meeting to gauge interest from leaseholders and consider making joint applications with other leaseholders to extend the leases to your flats (if there is insufficient interest to buy the freehold)
• If there are a number of you interested in buying your freehold, this helps to reduce legal and valuation costs (both yours and the freeholders’ costs for which you are also responsible) and provide you with greater negotiating power with the premium
- Once you have decided to go ahead with purchasing the freehold of your block, depending on how many leaseholders are involved, consider drafting and signing up to a participation agreement – click here for more information.
• Establish if there are leaseholders in the block prepared to lead the project, as it helps to have someone who can manage the process and has the time, understanding and interest to drive it forward
• Poor service and unreasonable behaviour on the part of the landlord or agent is also grounds for success in an enfranchisement bid
• Obtain specialist legal advice from experienced enfranchisement solicitors). You should be aware that most solicitors simply don’t come across enfranchisement very often, if ever – so it really is important that you pick yourself an expert in this field to assist you with the legal side of enfranchising
• Instruct a suitably qualified specialist surveyor to advise on payment and to negotiate on your behalf, which will also help you to gauge the cost of the extended lease.