A leaseholders guide to leasehold enfranchisement
The Leasehold Reform, Housing and Urban Development Act 1993 gives leaseholders (also known as the tenants), the right to join forces to buy the freehold of their building. The right to enfranchise is dependent on the number of qualifying and participating leaseholders and certain criteria must be met in order to apply. Read our ‘What is collective enfranchisement and do I qualify‘ article to see what these are.
Organising collective enfranchisement can be a complex process, so it’s important you receive professional advice and understand your rights. To help you gain a better understanding, we’ve answered some of the most frequently asked questions below and outlined the process here.
What is collective enfranchisement?
Collective enfranchisement gives leaseholders (also known as the ‘tenants’) a legal right to join together to buy the freehold of their building. This is enabled by The Leasehold Reform, Housing and Urban Development Act 1993. Once acquired, the leaseholders will own the freehold, typically each owning one share.
Is it worth buying the freehold?
Buying the freehold gives the leaseholder control over their building. They can appoint their own managing agents, or manage the property themselves. There is also peace of mind in being part of a tenant-owned building, and this is usually a good selling point for buyers. It provides leaseholders some form of control over the block, which can be appealing.
Who can apply for collective enfranchisement?
The right to enfranchise is dependent on the number of qualifying and participating leaseholders. In order to apply for collective enfranchisement:
- The building must be a self-contained block, with a minimum of two flats
- The building must have no more than 25% non-residential use
- At least 50% of all leaseholders in the building must participate
- Each participating leaseholder must have a long lease – with an original term of at least 21 years, or with a right to renewal Unlike individual lease extension or enfranchisement of a leasehold house, there is no requirement to have a minimum period of ownership
How much will it cost?
The price will depend on several variables such as:
- The value of the flats
- The ground rent provision for each flat
- The length of the current lease for each flat – especially if any flats have less than 80 years remaining
- Whether there is any development potential at the property that the freeholder will lose
- Whether there are parts of the property that the leaseholders will acquire, which will add value to the property (e.g. loft spaces or basements)
You will need a Chartered Surveyor to carry out a valuation of your property and determine the premium payable, and a specialist solicitor to deal with the legal issues. Other costs to factor in include:
- Legal fees – the cost of hiring a solicitor
- Valuation fees – the cost of the surveyors report
- Stamp duty – this applies to lease extensions in the same way as any other home purchase.
- The freeholder’s fees – you’ll need to cover the freeholder’s ‘reasonable’ legal costs and valuation fees. This does not include the freeholder’s costs for negotiating.
Do we need to form a company?
Although there is no legal requirement to do so, we would always recommend this unless the block has fewer than four participants. This is because only four names can be registered at the Land Registry as the freeholder. To avoid disputes over who becomes a trustee or beneficiary, forming a company means that all participating individuals can become shareholders or members
How long does the enfranchisement process take?
On average, the process could take between six to twelve months, but this could be longer if an agreement cannot be met between you and freeholder. You will need about two to three months to obtain legal advice and a valuation, report back to the other residents, and then organise yourselves to be in a position to go forward with the claim. If the freeholder is prepared to co-operate, then the claim can be concluded quickly – usually within three months of the Counter Notice being served.
Buying the freehold vs the right to manage
Leaseholders who want more control over their block have two options. One option is to buy the freehold – but under the Commonhold and Leasehold Reform Act 2002, most leaseholders can also apply with other leaseholders for the ‘right to manage’ their building. This enables the leaseholder to manage the block themselves, or appoint a managing agent on their behalf. The benefit of this compared to collective enfranchisement is the cost; the main costs are professional fees. However, the right to manage does not give you control of the freehold, nor does it grant you lease extensions with further premiums payable to the freeholder.
My property is a leasehold house – can I acquire the freehold?
The leaseholder of a house only has the right to enfranchise if certain qualifications are met. These include:
- The house – the building must be reasonably considered a house. If it has been divided into flats, the leaseholder must own the whole house.
- The lease – it must be a lease with an original term of more than 21 years
- The leaseholder – they must own the lease of the house at the time the enfranchisement claim is made. They must also have held the lease for the past 2 years, or 2 years in the past 10 years. The valuation method which is used to determine the price the leaseholder will pay is required by the law to value the freeholder’s interest as if the house were being sold in the open market. Therefore, the valuation of the property will fairly compensate the landlord for the loss of their house.
Need advice or services?
Kempton Carr Croft is a member of the association of leasehold enfranchisement practitioners. (ALEP) If you are looking to apply for collective enfranchisement, please speak to a member of our specialist team and view our leasehold enfranchisement service page for more information.
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