Collective Enfranchisement

Lease Enfranchisement   / Collective Enfranchisement                                         

Under the Leasehold Reform, Housing and Urban Development Act 1993, as amended by the Commonhold and Leasehold Reform Act 2002, a group of leaseholders are entitled to apply to the freeholder of their building to purchase the freehold.

Why should I purchase the freehold?

The majority of leaseholders opt to purchase the freehold in order to run their own affairs and to have direct control on the management and maintenance of the building. It is also another way to obtain a lease extension if lease terms are low.

Can I purchase the freehold or share of freehold?

There are certain criteria that must be met before you can apply to the landlord for purchase of the freehold and they are as follows:

1. The building must have a minimum of two flats.
2. Where there are only two flats in the building both leaseholders must participate.
3. If the building was originally a single house (and since converted) and there are less than five flats, the freeholder, provided he carried out the original conversion, must not live in the building if the leaseholders wish to qualify.
4. Leaseholders who wish to participate must qualify by holding
5. The number of leaseholders who wish to participate must represent at least 50% of the number of flats in the building.
6. There must not be more than 25% of the internal floor area of the building in non-residential use, for instance a shop or office. Resident’s parking spaces are not included in calculating the floor areas.
7. At least two thirds (2/3) of the building is let to “qualifying tenants” (over 21 years when originally granted)

This is not a fully comprehensive list of requirements but should cover most eventualities. If the leaseholders do not fulfil the above requirements they may still wish to apply to the freeholder but only outside the terms of the 1993 Act.

What will it cost?

Obviously the landlord is not going to give the freehold away for nothing and indeed legislation provides him with compensation for the loss which the leaseholders must pay. The cost will be made up of the following:

1. Loss to the freeholder of his ground rent income from the flats.
2. Loss to him of his reversion and any potential development value, i.e. his entitlement to the building at the end of the existing leases, and any other loss to him (if any).
3. 50% of the marriage value. The marriage value is best defined as the increase in the value of the property arising from the leasehold and freehold interests being combined. Marriage value is not payable when the applicants un-expired lease term is 80 years or more.

Leases that were originally granted of more than 21 years. There is now no minimum ownership period and no residency requirement.

How do I get started?

Initially then you will want a professional report that gives a valuation of the cost of the purchase and that can be used as a basis in subsequent negotiations with the landlord. The same report can also be used if the matter goes to tribunal.

What is the procedure under the Act?

The formal procedure for Collective Enfranchisement is started by the service of the Initial Notice on the landlord: it then follows a prescribed route. Although this is the beginning of the statutory procedure the service of the notice should follow a period of preparation to ensure that the participating leaseholders are fully equipped and advised to complete their action. There is a substantial amount of work to be completed if the application is to be successful. In simple terms the tasks that need to be undertaken will include:

• Checking Eligibility
• Organising for Enfranchisement
• Establishing the Finance and Cost Fund
• Assessing the Purchase Price
• Gathering the Information
• Setting up the Right to Enfranchise Company
• Serving the Participation Notice
• Serving the Initial Notice
• Preparing for the subsequent Procedures

What will GPC do?

GPC are professional valuers and we will carry out a valuation of the premium to be paid for the purchase as required by legislation. This will take the form of an initial appraisal or full valuation report depending on your requirements. The figure we can provide comes from our experience of acting on behalf of leaseholders under the 1993 Act. It also comes from cases that have been brought before the Leasehold Valuation Tribunal.

We will also advise as to the procedures for applying for the purchase under the Leasehold Reform Act and carry out all negotiations throughout this procedure.

In our experience there are four possible principal stages in advising clients.

1. Initial Appraisal in cases where clients need to decide whether or not it is worth proceeding further.
2. Full Report and Valuation which would be in two parts and includes No. 1 above. The first is advice as to the parameters of total costs and procedures and other matters for the benefit of lessees and their advisers only. The second being the detailed argued case for the figure we recommend be put in the notice and which would eventually form the basis of any experts report.
3. Negotiations with the freeholder or freeholder’s representatives in the hope of establishing a negotiated settlement and any further advice required in respect to the initial or counter notices.
4. Reference to the Leasehold Valuation Tribunal which will include the preparation of an Expert’s Report providing counter submissions after exchange of Experts Reports and attendance at the Tribunal.

WHY INSTRUCT US

This is one of our specialties. The ability to read a lease carefully, to find angles and explore ways of interpreting the provisions, and assessing the evidence, requires a calm mind and meticulous thinking. We have extensive experience and have a track-record of superb results.