Collective Enfranchisement

This is the process where tenants can group together as a collective endeavour to take over management of the building, be in the driving seat and in control of service charges and be in a situation where they can grant themselves a 999 year Lease. Tenants will have a share in the company that owns the freehold.

Tenants will need to form a company known as a “Nominee Purchaser” to acquire the freehold.  This will need to be formed at the beginning before an Initial Notice is served. It is the Nominee Purchaser who will serve the Initial Notice on the Landlord.

1.    Does the building qualify?

At least two thirds of the flats need to be let to qualifying tenants.

If more than 25 per cent of the internal floor area of the building is used other than for residential purposes, the building will not qualify.

There is no right of collective enfranchisement where the building is a conversion of four or fewer flats and the same person has owned the freehold since the conversion.

2.    Are there enough qualifying tenants?

The minimum number of participating tenants must equal at least half the total number of flats in the building. Consideration needs to be given to who is in the block, a steering committee is often advised.

It is strongly recommended that in large blocks, all participating tenants enter into a formal participation agreement amongst themselves to govern joint actions prior to and during the collective enfranchisement procedure.

In small blocks, it may be possible to dispense with the agreement by everyone paying their share upfront.

The Nominee Purchaser is the person named in the Initial Notice who will acquire the freehold and become the new landlord.  The Nominee Purchaser upon collection will be responsible for the management of the building.

3.    Costs

Depends how many people are taking part in the process as will have to bear in mind the costs for those not taking part. Some people may be liable to contribute more if their flat is much larger etc.

Valuer – Providing the best and worst valuation evidence to fully appraise the tenants of the outcome of negotiations.

Advising on the amount of the offer to be made in the Initial Notice.

Responding to the Landlord’s Counter-Notice, negotiation and settlement of price, advice on structural and repair condition and implications for future maintenance costs/service charges and advice on future management.

4.    The Solicitor

a)    Preparation of information for the action
b)    Setting up the company
c)    Serving the Initial Notice
d)    The conveyance of Title
e)    Amendment of the terms of the Lease after enfranchisement.

5.    Assessing the Purchase Price

An initial valuation of the property by a qualified valuer or surveyor is strongly recommended in order to provide enfranchising tenants with an idea of the final purchase figure prior to commencing the action.

The Tenant will also be liable for the Landlord’s costs and this should be borne in mind.

The eventual cost to the tenant will be the share not only of the cost of the freehold but also the landlord’s reasonable costs and the tenant’s legal and valuation costs.

6.    Information Notices

S11 of the 1993 Act provides a right for the tenants to serve notices on the freeholder or any other person with an interest in the property, requiring details of that interest.

7.    The Initial Notice

This triggers the statutory procedure for acquiring the freehold and the participating tenants are jointly and individually liable for the Landlord’s reasonable costs as from the date the Landlord receives the Notice.

An incomplete notice can be rejected as invalid.

A solicitor should protect the enfranchising tenants by registering a Unilateral Notice under the Land Registration Act 2002. This will provide protection for the company against the Land Registration Act 2002. This will provide protection for the company against the Landlord’s sale of the freehold since any purchaser of the freehold will take the purchase subject to the application for enfranchisement. The procedure will continue as if the new owner received the Initial Notice.

The initial Notice must be correctly on the freeholder and must include the correct information on the interests of the participating tenants and any intervening interests. The identity of the freeholder is important, the details of the intervening headleases and the full names and addresses of all the tenants of the building.

8.    What if the Landlord is absent?

If the property was a company which has been struck off or ceased to trade for some reason, its property may have passed to the crown so enquiries should be made of the Treasury Solicitor who will usually be prepared to sell the freehold to the tenants at open market value. If this is the case, there is no need to serve the Initial Notice.

If the Landlord is a company in receivership, then the Initial Notice may be served on the receiver or the Trustee in bankruptcy.

If the Landlord cannot be found then the Initial Notice cannot be served.  In this instance the tenants can make an application to the county court for a Vesting Order. The tenants would need to demonstrate to the Court that they have used their reasonable endeavours to find the freeholder such as placing an advertisement in the local paper.

If the court is satisfied with the efforts made and qualification, then it will in effect, sell the freehold to the tenants in the Landlord’s absence. This will be subject to the application to the Landlord Valuation Tribunal for determination of price.

9.    After service of the Initial Notice

The Landlord after service of the Initial Notice, the Landlord is entitled to require evidence of the participating tenant’s title to their flats. The Landlord has a period of twenty-one days from the giving of the Initial Notice in which to request the information. The Landlord will also have a right to inspect the property including the participating tenants’ flats, subject to ten days’ notice given to the occupier.

The Landlord must serve his counter notice by the date specified in the Initial Notice, this must:

a)    Agree your right to the freehold and accept the terms or propose alternative plans or
b)    Not agree your right to the freehold and give reasons why or
c)    Neither admit or deny your right to the freehold and say landlord intends to redevelop the whole or a substantial part of the Premises. If this is the case, the Landlord will not be obliged to sell the freehold but would need to produce evidence.

10.    If agreement cannot be made

After the freeholder serves the Counter-Notice and the Nominee Purchaser and the freeholder cannot agree on the price, then after two months following service of the Counter- Notice, either party can apply to the Land Valuation Tribunal for an independent determination on the issue

11.    What if the Landlord fails to serve a Counter- Notice by the date specified?

The participating tenants may apply to the County Court for a Vesting Order. This would be an order allowing them to acquire the freehold on the terms of the Initial Notice including the premium proposed.

The material contained in this guide is provided for general purposes only and does not constitute legal or other professional advice. Appropriate legal advice should be sought for specific circumstances and before action is taken.

© September 2014

Please contact:

Victoria Eccles

DD +44 (0) 20 7553 4075

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