Enfranchisement
The Leasehold Reform Housing and Urban Development Act 1993 (as amended by the Commonhold and Leasehold Reform Act 2002) gives leaseholders the right, upon qualification, to force the sale of the freehold of their building, or part of their building, and purchase it collectively.
Benefits
Collectively buying the freehold allows leaseholders to set up a company (residents management company) and have complete control over the management of their development. It also allows them to protect their investments by extending the length of the lease and prevents unscrupulous freeholders/landlords from carrying out expensive works and expecting lessees to bear the costs.
The Process
The formal procedure for this sort of purchase, also known as collective enfranchisement, follows a prescribed route which starts with the service of an Initial Notice on the landlord. The notice must be served by a Nominee Purchaser on behalf of the participating tenants.
The Nominee Purchaser is usually a company formed by the participants to ultimately purchase the freehold. Although this is the beginning of the process, the service of the notice should follow a period of preparation to ensure that the participating tenants are fully equipped and advised to complete the process.
Outline
There is a substantial amount of work to be completed if the application is to be successful, below if a basic outline of the enfranchisment process.
- Ensuring qualifying criteria are met - checking that there are at least two flats in the building and that at least two thirds of the flats are owned by qualifying tenants, etc.
- Preparing for the next stages – when it has been established that the qualifying criteria have been met, it may be worth setting up a working party to move things forward
- Choosing the Nominee Purchaser – it is the nominee purchaser that will become the landlord when the freehold purchase completes. In most cases of collective enfranchisement, where a group of tenants are seeking to buy the freehold, a limited company is set up for this purpose. The participating tenants will become members or shareholders of this company and directors will be appointed from their midst.
- Selecting and Instructing Professional Advisers; such as solicitors and surveyors or valuers, to provide professional advice and support through the process
- Assessing the Purchase Price – essential at the outset to establish the likely final purchase price and all associated costs
- Serving the Initial Notice – this is the starting point for the freehold acquisition process and it is important that it is correctly compiled and served.
- Preparing for the subsequent procedures – the landlord has 21 days from the date of the Initial Notice to request additional information. The tenants then have a further 21 days in which to provide any information requested by the landlord.
The above need not necessarily be in this order, and in many cases several issues will happen at the same time. It is important, however, that all steps are followed and that no critical areas are neglected or overlooked. Once the Initial Notice has been served, the procedure is up and running and the nominee purchaser is likely to be subject to demands for information and to certain deadlines.
How Shaw & Co can help
Failure to comply at any stage could endanger the process and it is important to note that the participating tenants are liable for the freeholder's and any other relevant landlord's reasonable professional fees from the moment they serve Initial Notice, regardless of whether or not they complete. Shaw & Co can assist you through this whole process, offering professional guidance and advice and offering a complete package.
If you are thinking of collectively purchasing the freehold of your development please contact us today for more information.
