Collective Enfranchisement: Part 3 – the pros and cons for leaseholders

The benefits to a leaseholder, of proceeding with a collective enfranchisement claim and in time owning a share of the freehold of their building include: 

Maximum control – Leaseholders will have more control over the terms of their lease, the property, and the management of the building – so they will have the necessary power to improve the standard of management for instance, or reduce service charge expenditure

Increased property value - Owning a share of the freehold will usually increase the value of the leaseholder’s asset (the leasehold interest paired with a share of the freehold).

A longer lease - The leaseholders will have the collective power to increase the length of their leases to 999 years at no cost (other than legal fees to draw up new documents)

Authority to vary - The leaseholders will have the power to vary the terms of their lease, for instance to stop paying ground rent or rectify any defects.

 

The drawbacks to a leaseholder of owning a share of the freehold of their building may include: 

The cost of the collective enfranchisement process - The leaseholder will have to pay their share of the premium to buy the freehold, legal fees, surveyor’s costs, and the freeholder’s legal fees and valuation costs. The leaseholders may also need to pay the freeholder any uncollected ground rent and / or service charges.

Lengthy process - The collective enfranchisement claim can easily take a year, and these timeframes can be exacerbated by an obstructive or difficult freeholder.

Requirement to work together with neighbours (the other qualifying, participating tenants) - At least 50% of the leaseholders in the block need to qualify and participate for the collective enfranchisement claim to succeed, the participants will need to work together throughout the process.  Once the collective enfranchisement process is complete and the participants own a share of the freehold of the building, the participants will still need to work together thereafter to deal with the management of the building and give instructions to any managing agent.

It will be up to the individual leaseholder to decide whether the benefits of purchasing a share of the freehold of the building outweigh the drawbacks. Overall, owning a share of the freehold gives the leaseholder ultimate control over the building, but the downside to that is having to compensate the freeholder for their loss, and manage the building thereafter.

 

Part 4 of the Guide will be released shortly, it will explain how the qualifying tenants can organise for the collective enfranchisement claim with a participation agreement, nominee purchaser and monetary fund.

We are experts in this area, and we have an experienced Residential Property team and Property Disputes team who can assist leaseholders and freeholders with collective enfranchisement matters. You can contact us at [email protected].