Q: Another tenant in my apartment block has suggested that we seek to buy the freehold of our property. Is it possible to do so and what is involved in the process?
Since the mid-1990s, tenants have had the ability to purchase the freehold of a building within which they have a lease over a property. The process is called ‘enfranchisement’; tenants either elect a nominated person or persons, or establish a limited company within which each takes a share, and the tenants or company, funded by the shareholding tenants, buys the freehold from the landlord on behalf of all of the participating tenants.
Enfranchisement is governed by a set procedure. Before starting out on the process, tenants are well advised to fully-research and cost out the purchase, as well as to take good legal advice as to how the acquisition will affect them.
Tenants will need to ensure that both they and their building qualify and are eligible to exercise enfranchisement. There should be at least two flats in the building and leases of at least two-thirds of the flats’ leases must have been granted for over 21 years. Alternatively, shorter leases must be capable of ongoing renewal or, in the case of shared ownership leases, the tenant’s share must be 100%. Right-to-buy leases also qualify. There are a number of exclusions; charitable housing leaseholders and business and commercial tenants can’t exercise enfranchisement and tenants who own more than two flats in a building are also excluded.
At least half of the qualifying tenants in a building must be willing to proceed; so for example, if your building contains 12 flats, at least 6 tenants must qualify and participate. If there are only two flats, both tenants must participate.
A legal adviser will be able to assess fully whether you qualify.
It’s worth getting together with your fellow tenants at this stage and gathering support from those who wish to join in with the purchase. You may want to enter into an agreement together, formally setting out terms such as how you will vote, who is responsible for negotiation and what each tenant’s financial contribution will be. You should also consider how other aspects to the purchase will be funded, including professional fees and valuation costs.
Serving the Initial Notice
Tenants (under the name of their limited company) will need to serve an Initial Notice on the Landlord, notifying it of their intention to exercise their right to purchase the freehold. If tenants are setting up a limited company, this will need to have been done beforehand; again, a solicitor or accountant will be able to advise and manage this for you.
Tenants will need a valuation, advising of the amount they should offer in their Initial Notice (this is likely to be advice as to the ‘best’ and ‘worst case’ scenarios). The valuer should continue to have input on receipt of the Landlord’s Counter-Notice and deal with negotiation and agreement on the purchase price. Valuers may also be able to advise as to the ongoing management of the building following completion of the purchase.
The Landlord’s response
Once the Landlord has received the Initial Notice, tenants can expect requests for information, including evidence of their leasehold interests. This information must be supplied within 21 days so tenants must ensure that, before starting the enfranchisement procedure, they are fully prepared with all documentation to hand. If information that is requested is not provided, tenants are unable to apply again for another 12 months.
The Landlord will then serve a Counter-Notice, acknowledging the tenants’ right to purchase and either agreeing terms or proposing alternatives. Landlords who do not agree to enfranchisement generally apply to Court for an Order to state why the right cannot be granted or to have its reasons verified. Parties may also apply to Court if the purchase price cannot be agreed.
If a Landlord intends to demolish and/or redevelop a building, or a substantial part of it, the Landlord is not obliged to sell the freehold to the tenants. However, this can only apply if at least two-thirds of the leases in the building will end within 5 years of the date of the Initial Notice.
Progressing the purchase
Once a price is agreed, the parties can proceed to an exchange of contracts. If the case has gone to Court, a Landlord must send to the tenants a draft contract within 21 days of the date of judgment. Both parties should exchange contracts within two months of the judgment, agreeing a date for completion; if they fail to achieve this deadline, tenants should make a further application to Court for an Order stating that the property is transferred to them.
Enfranchisement is a complex process and is governed by strict time limits. It is important to obtain good legal advice from an early stage. MBH’s Mark Boon and Caroline Rooks are experts in Landlord and Tenant and Commercial Property; call 01942 206060 to make an appointment.
McCarthy Bennett Holland, established in Wigan since 1971, offers a personal service across a wide range of legal practice areas, including residential and commercial property, family and matrimonial, wills and probate, employment, personal injury and company commercial.
Contact Caroline Rooks to discuss your property or other legal requirements in confidence at:
Tel: 01942 206060
Address: 26 Bridgeman Terrace, Wigan WN1 1TD