The Collective Enfranchisement Guide is a series of articles which will be useful for leaseholders looking to purchase the freehold of their building, and, for freeholders in receipt of an Initial Notice. This first part will explain what collective enfranchisement is, and provide an overview of the process.
What is collective enfranchisement?
Collective enfranchisement is a right that some flat owners (leaseholders) have, to group together with the owners of other flats in their block and purchase the freehold of the building. The relevant legislation that provides for this is the Leasehold Reform Housing & Urban Development Act 1993 (as amended) (the “Act”). To proceed under the Act and purchase the freehold, the building needs to qualify and there needs to be enough ‘qualifying tenants’ participating in the claim. Part 2 of the Guide will set out what a building needs in order to qualify, and what a ‘qualifying tenant’ is.
An overview of the collective enfranchisement process:
The below gives an overview of the collective enfranchisement process, but the order of these steps may be different in practice, and some of these steps may be undertaken simultaneously.
Check that the building qualifies, and there are enough qualifying tenants, to proceed with the claim.
Set up a company to be owned by the qualifying tenants. The company will be registered as the owner of the freehold in due course and is referred to as the nominee purchaser.
Instruct solicitors for the legal work, and surveyors for the valuation.
Review the surveyor’s valuation to determine what purchase price (“premium”) to propose in the Initial Notice.
Serve the Initial Notice on behalf of the qualifying tenants, on the freeholder and other relevant landlords.
The freeholder serves their Counter Notice.
Surveyors attempt to agree the premium and other terms. If no agreement is reached, an application to the tribunal can be made and the tribunal will issue directions as to how the matter should be dealt with.
If the parties reach agreement on the premium and other terms, then the parties may exchange to complete the purchase within 2 months, or, proceed straight to completion.
The collective enfranchisement process is complex, and there are many legal pitfalls to avoid. For instance, the Initial Notice and the landlord’s Counter Notice must both have the required information and be served appropriately. We therefore suggest that solicitors are instructed before commencing the collective enfranchisement process or at the earliest opportunity.
Once the Initial Notice has been served, the nominee purchaser will become responsible for the freeholder and any other relevant landlords reasonable (legal and valuation) costs whether or not the matter proceeds to completion, and, there will be deadlines to comply with – with serious consequences if they are missed.
Part 2 of the Guide will be released next week – it will set out what a building needs in order to qualify, and what a ‘qualifying tenant’ is.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.