There are two types of enfranchisement; Collective and Individual.
Collective Enfranchisement
The right is given to the Tenants of a block of flats to collectively buy the freehold of the block and the legislation governing this right is created by the Leasehold Reform , Housing and Urban Development Act 1993 ( amended by the Commonhold and Leasehold Reform Act 2002).
Broadly speaking , to qualify ,the flats must be in a self contained building or part of a building where not more than 25% is non – residential, two or more flats are held by qualifying tenants ( tenants with long leases where the original term granted was for more than 21 years) and the total number of flats held by the qualifying tenants is not less than two-thirds of the total number of flats and those tenants participating must total not less than 50% of the total number of flats.
Example – 18 flats, at least 12 flats must be (two-thirds) held by qualifying tenants and at least 9 flats must participate ( 50% of the total flats)
The Tenants need to form a company known as the “Nominee Purchaser” and the Freehold will eventually be registered in the company name.
The Tenants would be wise to establish a “fighting fund” to cover the costs of the valuation (that will need to be obtained), the setting up of the company etc and prior to service of notice, to establish future funding.
The service of the notice is very important and should be drafted by a Solicitor. If it is not served correctly then it may be invalid and would have to be amended at Court, a further expense for the Tenants.
Serving the notice triggers the various statutory procedures and timetables and also means that the Tenants will be liable for the Landlord’s reasonable costs.
- Advantages of Collective Enfranchisement
- Property not wasting asset
- Flat increase in value/ more saleable
- Own freehold – control management of block, reduce running costs
- Can extend the leases if required at nil or low premium – give 999 lease and could update leases
Individual enfranchisement
Governed by same legislation and if successful, the Tenant will get a new lease for 90 years plus the unexpired term of existing lease at a peppercorn rent i.e. nil.
The less years on the lease, the more it will cost to extend, especially if under 80 years as then marriage value is payable to the Landlord. Also some mortgage companies do require the lease term to be double the mortgage term plus at least 20 years so if you are planning to sell, either now, or in the future, you may have no choice but to extend so your buyer can get a mortgage.
If you extend the lease outside the terms of the Act then you may be able to obtain a 999 year lease but it’s unlikely the rent will be a peppercorn so there are pros and cons.
To qualify, broadly speaking, the tenant must hold the property on along lease ( as above), it must be a flat and the lease must have been held for a continuous period of two years ( this means the Tenant has been the registered proprietor, not that they have lived in the flat).
If proceeding down the statutory route and timetables then a similar notice procedure needs to be followed by the Tenant and Notice must be served on the Landlord, again, this should be served by a Solicitor so it is valid.
Advantages to individual enfranchisement
Similar to collective except cost of individual lease extension of only 90 years may be close to the cost of collective enfranchisement and with the latter, the overall control advantage is a very appealing one.
Where possible, it is preferable to collectively enfranchise, however it will require the co-operation of your neighbouring tenants and a lot of organisation.
Right of First Refusal
Basically, Section 1 of the Landlord and Tenant Act 1987 prohibits a landlord making a disposal of the Freehold unless they have given the qualifying tenants a right to purchase the freehold before trying to sell if on the open market.
I have advised Tenants on the service of Section 5 notices by Landlords and the acceptance notices required under Section 6, all the way through to the exchange and completion stage.