Leasehold enfranchisement ( often referred to as ‘freehold purchase’ or ‘collective enfranchisement’) refers to a group of tenants [technically leaseholders], who own flats in the same building, collectively purchasing the freehold interest from the landlord. It is a legal right under the Leasehold Reform Act (1993).
Enfranchisement lets the tenants become their own landlord and allows them to grant themselves long leases of up to 999 years with no ground rent.
Want to know more about Enfranchisement or the Right to Manage? Call our specialist solicitors on FREEPHONE 0800 1404544 for FREE initial phone advice – with no strings attached.
Whether you want to buy the freehold of your block or exercise your right to manage of your block, there are complex areas of law and procedure involved – and very few law firms deal with these issues on a regular basis.
That’s why our leasehold team is so special – that, along with lease extension, is all the five strong team, handling up to 500 of these cases every year.
1. We are the sole partners of The HomeOwners Alliance – we are the only solicitors recommended for enfranchisement and right to manage advice by the only organisation championing and supporting Britain’s 17 million homeowners.
2. We are Progressive Approved Solicitors– we are one of only three law firms recommended and formally approved by Progressive Property – the UK’s largest property investment education company
We are also members of ALEP (the Association of Leasehold Enfranchisement Practitioners) – the only specialist group for right to manage and enfranchisement surveyors and solicitors
How do I qualify for enfranchisement?
For a group of leaseholders to exercise their Right to Enfranchise, the following conditions must be satisfied:
- There must be at least 2 flats held within the freehold
- No more than 25% of the freehold building must be used for non-residential purposes
- At least 2/3 of the flats must be let to qualifying leaseholders
- As a minimum, 50% of the flat owners must want to participate in the enfranchisement
- A qualifying leaseholder is one whom holds a lease granted for 21 years or more.
Unlike a lease extension however, there is no need for a tenant to have at least 2 years ownership of the flat.
Enfranchisement may also involve some additional costs for leaseholders – as it’s usually more complicated to keep a group of people continually involved in this kind of legal action – and of course the costs in the eventual management of the block.
Leasehold enfranchisement – the advantages
In most cases, leaseholders in a block of flats can benefit hugely from enfranchisement – and in particular they benefit from the following:
- You gain full ownership of your flat and take over the running of the common areas – instead of just having the legal right to live there until the lease expires.
• If you own the freehold you will not have to pay ground rent any longer.
• You can choose new service providers who offer better value for money than the service providers chosen by the previous freeholder.
• Buying the freehold can add value to your property. It is often difficult for buyers to secure mortgages on leasehold flats so a freehold property is likely to be more attractive.
• As the freeholder you will not have to pay for your lease extension and can extend your lease to 999 years.
• As a leaseholder you can be subject to conditions restricting letting and keeping animals in the property for example. Freeholders are not subject to such restrictions.
Leasehold enfranchisement – the big disadvantage?
The biggest problem you are likely to come across with leasehold enfranchisement is probably not the law, the procedure or your freeholder – but getting the initial agreement and then keeping the involvement of your fellow leaseholders. This is not so much of a problem with small blocks, but the larger blocks get, the more of a real obstacle this issue becomes. That’s where a participation agreement can help.
Click here to read more about Enfranchisement Participation Agreements
It is of course true that the right to manage also involves working together with your fellow leaseholders – and that’s exactly why lease extension itself is far more common than enfranchisement or exercising the leaseholders’ right to manage.
But one of the biggest differences between RTM and enfranchisement is the cost.
The cost for exercising the right to manage is broadly legal fees and other professional and administrative costs – but with enfranchisement, you have to add in surveyors costs to value the price of the premium, and most importantly the premium for buying the freehold itself – and getting the agreement of sufficient number of your fellow leaseholders to come up with enough cash can be a real problem.
Click here to find out more about lease enfranchisement.
Right to manage
One alternative to enfranchisement, if you want to gain more control of your block, is the right to manage (or RTM) – a statutory right awarded to tenants under the Commonhold & Leasehold Reform Act (2002).
The right to manage does not involve buying the freehold of your block. Instead it merely gives tenants the legal capacity to manage the landlord’s building in which their flat is situated. Normally the tenants will form a Right to Manage Company, to deal with management of the building.
A right to manage gives responsible tenants the opportunity to manage their own living environment – and you don’t need an incompetent landlord to qualify for the right to manage.
When exercising your right to manage,you and the other participating leaseholders will also have to pay the costs associated with your RTM company formation – and in registering the new company with Companies House. You will also need to bear in mind the annual costs that will be associated with the right to manage company (if you choose to get an accountant to take care of your returns, for instance).
Right to manage – the disadvantages
The Right to Manage Process does however have some disadvantages.
- Firstly remember that RTM is very limited. The RTM company can only protect funds for leaseholders and will only generate such funds through service charges.
- The company can also have a difficult relationship with the freeholder whose permission will still be required for alternations and lease extensions. Furthermore the landlord’s costs must be paid for by the RTM company which can prove very expensive.
- Although there are certain short term advantages to RTM, we advise clients who are thinking about it to consider the collective enfranchisement process instead because of its long term plus points.
Collective enfranchisement offers by far the greater freedom and it therefore the best way of gaining greater control over block management.
However, leaseholders are often priced out of the costly enfranchisement process or they cannot get at least half of the leaseholders in the building to agree to join the collective enfranchisement effort.
RTM – the advantages?
One clear advantage of RTM is that it allows a fair service charge to be set and prevents the landlord being able to charge extortionate amounts.
For whatever reason, RTM is viewed by many as an easy option but this is a dangerous viewpoint. RTM will not correct the injustices that have gone before in terms of poor management or hefty service charges; it will simply pass all responsibility for management from the freeholder to the RTM company. The company will often be short of funds and will struggle to generate sufficient revenue from service charges. If this is the case, an application to the First Tier Property Tribunal for Reasonableness of Service Charge action or a Court Appointed Manager maybe required.
RTM can appear to be the perfect solution to the problem of a landlord not taking their management responsibilities seriously but leaseholders should bear in mind that taking these responsibilities on themselves is not necessarily the answer
How do I qualify for the right to manage?
The legal requirements for a tenant to issue a right to manage notice are the same as that of an enfranchisement action.
Although UK RTM allows tenants flexibility in making day-to-day decisions, it will not facilitate lazy tenants wishing to save money on maintenance costs through allowing the flats to deteriorate.
As a landlord you are entitled to become a member of the RTM company, which will enable you to vote on issues concerning your freehold interest. Not only this but the Right to Manage company will reimburse you for any costs incurred in passing over this right.
In order for the Right to Manage company to run the building successfully the landlord becomes under a duty to provide the company with all necessary information and records. Not only this, but any funds collected via service charges, for example those held within a sinking fund, will consequently be transferred across to the company.
Click here to read more about the right to manage.
The alternative to RTM and enfranchisement? Lease extension
In trying to increase your control over your leasehold flat, there is, of course, a third alternative – extending your lease. While this doesn’t solve the problem of control of your block, it does give you much greater security and will often significant add to the value of your property. It is often used alongside exercising the right to manage.
Our team are lease extension, RTM and enfranchisement specialists, handling around 450 lease extensions every year.
Click here to find out more about lease extension and how we can help you.
There is also another alternative to the Right to Manage – click here to read more about the Court Appointed Property Manager
Enfranchising or RTM – the need for a specialist solicitor
Whether you decide to exercise your right to manage leasehold property or your right to leasehold enfranchisement, don’t forget that the legal procedure is highly technical. Make sure you instruct a solicitor who specialises in these fields to help you with the legal side of freehold purchase or right to manage company formation.
Click here to find out more about process of collective enfranchisement