The Leaseholders as a group may be able to force the Freeholder to sell his interest in the building to the Leaseholders under the Leasehold Reform Housing and Urban Development Act 1993.
Buying the freehold offers the Leaseholders a number of advantages:
They can grant themselves new leases to extend the length of the lease term
New leases can be used to iron out any anomalies in the current leases which do not comply with the requirements of the Council of Mortgage Lenders, and thereby make the flats more difficult to sell
It gives the Leaseholders control of management of the building, ending the involvement of the Freeholder
Two-thirds of the flats must be owned by “qualifying tenants”, that is Leaseholders whose leases were initially granted for at least 21 years.
The participating Leaseholders, those Leaseholders who want to join in the enfranchisement, must own at least half of the flats in the building, and they must own at least two flats in total. For this purpose, it does not matter whether they live in the flat or not, and it does not matter whether the flat is owned by an individual or a company.
A Leaseholder cannot participate if he owns three flats or more in the building. All the flats owned by such a person must be discounted for the purpose of calculation whether the Leaseholders reach the “one half” threshold.
If the building is partly non-residential, Leaseholders cannot enfranchise if the non-residential element is more than 25% of the building.
A building converted into four flats or less with a resident landlord may not qualify for enfranchisement.
The participant Leaseholders must sign an “Initial Notice” setting out certain essential information about the building and the Leaseholders, with the name of the persons or company in whose name the freehold will be acquired, and the price that they wish to pay. TWM Solicitors will work with Leaseholders in gathering together the necessary information and documentation and preparing the Initial Notice.
The notice is served on the Freeholder.
The notice sets out a “Response Date” by which the Freeholder must respond to the notice. That date must be at least two months after services of the notice.
The Freeholder serves a Counter-Notice stating whether he accepts the participating tenants’ right to enfranchise and, if so, what terms he agrees and what he does not agree. TWM Solicitors, if we are advising the Freeholder, will prepare the Counter Notice if this is required.
If the Freeholder does not respond to the Initial Notice, or responds late, the Leaseholders are entitled to acquire the Freehold on the terms set out in the Initial Notice. There is a procedure for enforcing this.
There then follows a period of at least two months when the parties, generally through their respective Valuers, will try to negotiate an agreement.
If there are outstanding issues, the Leaseholders must, within six months of the date of the Freeholders’ Counter-Notice, apply to the Leasehold Valuation Tribunal (“the LVT”) for a decision on the terms which have not been agreed.
The LVT will provide directions as to what documentation etc it wants the parties to negotiate whilst this is going on.
The price payable for the freehold depends on a number of factors, including the market value of the individual flats and the length of the leases.
The price payable for the freehold will be higher if the leases have less than 80 years to run, substantially higher if the leases have significantly less than 80 years to run.
Leaseholders should approach a Valuer with expertise in this field to provide advice on a price before the Initial Notice is served. This is because, by law, the price in the Initial Notice must be “realistic”, so valuation advice is needed at the outset.
A Valuer is also likely to be required by both Freeholder and Leaseholders for negotiations, and to give expert evidence to the LVT if agreement cannot be reached. TWM have regular contact with specialist Valuers, and are pleased to place clients in touch with them.
In addition to the price, there are certain fees that have to be reimbursed to the Freeholder. These include costs incurred in checking whether the participating Leaseholders have the right to acquire the freehold, costs relating to the conveyance of the freehold, and the costs paid by the Freeholder to a Valuer for advice on the value of the freehold.
The Freeholder cannot recover any costs from Leaseholders in connection with the LVT application.
If you wish to engage TWM Solicitors to handle the application, whether you are a Freeholder or Leaseholder, details of charging rates and anticipated costs will be provided on request.
The freehold of the building in which the flats are situated and, normally, any communal grounds, and buildings within the grounds that form part of the freehold title, provided they are grounds and buildings that the Leaseholders have a right to use under the leases. If there are any head leasehold interests in between the freehold and the leases of the individual flats, they are acquired also.
If the Landlord is missing, there is a separate procedure, involving a combination of the Courts and the LVT, which enables you to acquire the Freehold even in these circumstances. Further details can be supplied on request.
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Peter Cavanagh, Residential Property. July 2017