What is Collective Enfranchisement?
Collective Enfranchisement is where tenants act together to require the landlord to sell them the freehold of the building under the Leasehold Reform Housing and Urban Development Act 1993.
What are the benefits to enfranchisement?
Enfranchisement has a number of benefits:
- Tenants can extend their leases to 999 years without having to pay a premium or the landlord's legal or valuation costs;
- New leases can be drafted to remove any inconsistencies or errors e.g. inconsistent wording, poor drafting, non-compliance with the requirements of the Council of Mortgage Lenders; and
- Tenants gain control of the management of the building and the appointment of the Managing Agent.
Do I qualify for enfranchisement?
There are a number of requirements which the tenants and the building must comply with to be eligible:
- There must be at least two flats in the building containing qualifying tenants (i.e. a tenant who was granted a residential lease of over 21 years).
- At least two thirds of the total number of flats in the building must be owned by qualifying tenants.
- At least 50% of the qualifying tenants must want to proceed with enfranchisement.
- The building or part of the building must be self-contained i.e. structurally detached from other buildings or parts of buildings.
- No more than 25% of the building can be used for non-residential purposes (e.g. commercial leases).
- None of the exclusions apply (e.g. the landlord must not be a resident landlord).
What are the steps in enfranchisement?
There are a number of steps involved in the enfranchisement process:
- Initial Survey & Valuation - A survey and valuation should be carried out first so that the tenants understand the condition of the building, any potential risks or issues, and the potential costs involved.
- Participation Agreement -- For larger buildings a contract should be entered into between the tenants so that they know what their rights and responsibilities are during the enfranchisement process.
- Incorporate a company to be the Nominee Purchaser - You cannot register more than four people as the legal owner of a property. A company is usually incorporated to act as the entity purchasing the freehold. A company enables ownership of the freehold to remain constant whilst membership of the company changes with the ownership of the flats.
- Tenants serve an Initial Notice - This notice sets out the proposed purchase terms and gives the landlord at least two months to respond, the "Response Date".
- Landlord serves a Counter Notice - The landlord has to serve their notice before the Response Date. They will either: accept the right of the tenants to claim enfranchisement, accept the right and dispute the proposed terms, or dispute the right.
- Negotiation - The parties then have period of at least two months from the Response Date to negotiate any outstanding issues.
- Application to Tribunal - If there are outstanding issues which cannot be resolved the parties can apply to the Tribunal within six months of the Counter Notice.
How much does it cost to purchase the freehold?
Both parties will normally incur the cost of a professional surveyor to advise them upon the value of the freehold and negotiate this figure with the other side.
Once the Initial Notice is served the tenants become liable for the landlord's reasonable surveyors costs and reasonable legal costs (drafting the transfer deed and checking the tenants right to claim enfranchisement). The costs incurred in negotiating the enfranchisement terms or dealing with any application to the Tribunal are paid for by each party.
The tenants will have to pay the value of the freehold to the landlord.
How can Pinney Talfourd help?
Pinney Talfourd have experienced and specialist solicitors who regularly deal with the enfranchisement process, challenging enfranchisement claims, and representing clients in the First-tier Tribunal (Property Chamber).
We have established relationships with local surveyors who will be able to advise you on the value of the freehold and the best approach to take in negotiations.
We are experts in the field of enfranchisement and are committed to working with you to ensure you achieve the very best possible outcome.
Pinney Talfourd is an established member of the Association of Leasehold Enfranchisement Practitioners (ALEP). This means that we are trusted and accredited solicitors who can offer expert advice. It also means that we have access to a network of vetted professionals who we can assist with every stage of your matter.