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.
Once the participants are established, the next practical step is to organise that group and record their commitment and cooperation to proceeding with the claim. Part 4 therefore explains how leaseholders should organise themselves in readiness for collective enfranchisement.
The participation agreement and nominee purchaser
We recommend that the participants enter into a formal agreement (a contract) known as a ‘participation agreement’. The participation agreement binds the participants to the joint purchase of the freehold of the block, and it will usually detail rights of voting, negotiation / agreement of terms, each participant’s financial contribution, and what will happen after the freehold has been acquired – for instance, if the new freeholder will grant new (longer) leases to the participants.
The participation agreement will also nominate the nominee purchaser – they will be named in the Initial Notice and will ultimately acquire the freehold and become the new landlord. The nominee purchaser may be a person – possibly one of the participants, a corporate person or trust, or most commonly, a company formed by the participants for this purpose. If the participants want to form a company to act as the nominee purchaser, then this needs to be done before the agreements are entered into, and the Initial Notice is served.
The participants may also want to consider establishing a cost fund to cover the initial steps (the valuation, confirming the building and participants qualify, setting up a company to be the nominee purchaser etc.) that are undertaken before the Initial Notice is served. Then, prior to service of the Initial Notice, the participants should agree how the rest of the process will be funded and the premium paid.
We recommend that a valuer or surveyor is instructed to provide a valuation of the property, to give the participants an idea of the premium that will be payable to acquire the freehold. The Leasehold Reform Housing & Urban Development Act 1993 (as amended) includes a formula that surveyors will use to calculate this, and they will give a price range of what the freehold is worth from both the leaseholders and freeholders point of view.
The participants should keep in mind that they will be required to pay the freeholder’s and any other relevant landlord’s reasonable legal and valuation costs, and their own costs too… not just their share of the premium.
Once the participants are on the same page with the expectations of the process, the costs, and what will happen after the freehold is acquired, the participants can then move on to the next stage – serving the Initial Notice. Part 5 of the Guide will set out the requirements for the Initial Notice and the consequences for the leaseholders of serving it.
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.