June 22, 2017

Enfranchisement

Enfranchisement or buying the freehold of your development is a very good idea if the majority wish it and it will give you more protection for the future, rather than being at the mercy of a rogue landlord. Owning the freehold will make it easier for you to sell your flat and transfer your share of the freehold to your prospective buyer. (Sometimes a deed of trust is more appropriate.)

With regard to the leaseholders’ right to purchase the freehold, this is the right of first refusal under Section 5 of the Landlord and Tenant Act 1987.  Briefly, this requires an incumbent freeholder to offer the freehold for sale to the existing leaseholders in the building FIRST, before placing it on the market for another third party to purchase.  There is a technical procedure to be followed and various remedies available to lesees who discover that this opportunity has not been given to them.  (It is illegal for the freehold not to be offered in this way).
It should be noted however, that in order for Section 5 to apply, there must be a “relevant disposal“.  In the case of new build properties, there may not be a disposal as the freehold title may be being created from scratch.  Also, disposals to “associated companies” are excluded.
(Two articles will be published in the forthcoming issue of News on the Block on the Right of First Refusal and remedies for breach – links will be made available shortly from this website).

You will need to obtain a valuation on the freehold purchase price and there will be some necessary negotiation to carry out with the current freeholder, who may argue that their valuation (higher) is more accurate. This can be difficult depending on who it is, or relatively plain sailing if you are fortunate.

If you tell a Leasehold Enfranchisement Lawyer how many flats there are in your block or house, and the full address, they  will be able to quote for carrying out this process. Further explanatory details of the process, including prices for the various elements of the process, setting up the company etc. can be obtained from the Association of Leasehold Enfranchisement Solicitors, see http://www.alep.org.uk.

Most flats and a few houses are owned under long leases, in other words, longer than 21 years. This means that “owner” in fact is renting the property for a very long term from a freeholder. The freeholder technically owns the ground beneath the property from the centre of the earth to the top of the sky.

Leasehold enfranchisement is the collective term for the process of democratising what is effectively a thousand-year-old feudal system. Successive governments have implemented laws starting with the 1967 Leasehold Reform Act, through the 1987 Landlord and Tenant Act, 1993 Leasehold Reform, Housing and Urban Development Act and most recently the 2002 Commonhold and Leasehold Reform Act. These have made it progressively easier for owners to buy out the freeholders, extend their leases or replace the managing agents, among other things.

The lease is a document that governs this relationship. For most owners (for the purposes of this article, the “owner” is the lessee or long leaseholder) this is a rather impenetrable and complex document that they never read. CarlEX and ALEP encourage every owner to make sure they DO read their leases and understand the various agreements under which they are bound.

Here is an article written by Yashmin Mistry, ex Brethertons, now a partner at JPC Law about Tripartite Leases. The document consists of two pages and is a pdf so can be printed for future reference if required.

Tripartite Lease Article by Yashmin Mistry  Tripartite Lease Article Page 2

ALEP members are specialists in helping particularly owners of flats to make changes to the tenure of their flats. Some also act for freeholders in these transactions. This broadly falls into three categories:

  • Lease extension
  • Freehold acquisition
  • Right To Manage

The option chosen depends on the individual circumstances.  If the lease length is getting to around 80 years or below, then this needs addressing. An extension needs to be obtained and this can be done broadly two ways. You can either do this as an individual directly with the freeholder, or you and your neighbours can look to buying the freehold or extending leases as a group.


Comments

  1. As A Freehold Resident attached to a minor number of 8 Flats which are Leasehold, may I anticiptate any change in the Law so that we Freeholders can opt for RTM?

    • We continue to press for an amendment to the legislation to improve the position for those living in a freehold property amongst other leasehold properties in a development. This was one of the subjects discussed at our meeting with Anthony Essien, MD of LEASE last week. We will keep you updated with further news.

      • I am still awaiting a response to my question about mixed developments, viz leasehold and freehold, where the leaseholders are in the minority.

        • The short answer is no. Grant Shapps is blocking regulation of managing agents and thinks the current legislative arrangements for leasehold are fine. Anomalies such as freehold properties within a complex with managed common parts and where there might also be leasehold properties are unprotected by leasehold legislation. Cameron has experience of this in his own constituency, but has done nothing.