Collective Enfranchisement - Getting Started
Outlining the qualification criteria and procedure in relation to collective enfranchisement (buying the freehold) of a residential leasehold building (flats)
Over the last twenty three years those practising in the residential leasehold field have become familiar with assisting leaseholders in buying the freehold of the building where they own a flat. Traditionally this has been either at the leaseholders own initiative under the Leasehold Reform Housing and Urban Development Act 1993 or following service of a landlord’s formal Offer Notice under the Landlord and Tenant Act 1987 Part I. However despite its lengthy time on the Statute books relatively few solicitors and surveyors can tell you about Acquisition Orders. Created by Part III of the 1987 Act this method of capturing the freehold has advantages over the more traditional routes.
An Acquisition Order may be made by the county court where it is satisfied-
- that the landlord is in breach of any obligation relating to the repair,maintenance,insurance,or management of the premises in question;
- both at the date when the application to the court was made and throughout the period of two years immediately preceding that date, there has been in force an appointment under Part II of the 1987 Act of a person to act as a manager in relation to the premises in question:
- In either case the court considers it appropriate to make the order in the circumstances of the case.
The right to seek such an order applies to premises which are the whole or part of a building and which contain two or more flats held by qualifying tenants and in which the total number of flats held by such tenants is not less than two-thirds of the total number of flats contained in the premises.
Beyond the premises it is also permitted to include in seeking an order any yard, garden, outhouse or appurtenances belonging to or usually enjoyed with the building. Excluded from the right are buildings with more than 50 per cent non-residential areas disregarding common parts in making the calculation.
It requires a requisite majority of qualifying tenants to seek an acquisition order. For this purpose two thirds of qualifying tenants are needed to comprise the” requisite majority”. A qualifying tenant will tend to be those with leases granted for a term lasting more than 21 years.
The starting gun is fired by service of a preliminary notice on the landlord. This notice should specify the name of the interested tenants, their respective addresses, state who is the nominee purchaser (that is the vehicle to buy the freehold, often a company); the grounds of the application and the matters relied on for the purpose of establishing those grounds. If matters are capable of being remedied the notice must require the landlord within such reasonable period as is specified in the notice to take such steps for the purpose of remedying them as are so specified.
Failure to comply with the preliminary notice will entitle the tenants to make the application to the county court. Should the court be persuaded by the tenants’ case they should make an order providing for acquisition of the freehold by the nominee purchaser on such terms as may be agreed between the qualifying tenants and the landlord or in default determined by the LVT.
It is in ascertaining the purchase price that there is noticeable difference from the 1993 Act. Under Section 31 of the 1987 Act the price is “An amount equal to the amount which …..that interest might be expected to realise if sold on the open market by a willing seller on the appropriate terms and on the assumption that none of the tenants of the landlord of any premises comprised in those premises was buying or seeking to buy that interest”.
In other words marriage value is discounted in ascertaining the purchase price so if there is 80 years or less to go on the lease the Acquisition Order option has its attractions. Indeed if it can be shown that there are major problems with the management of the building consider seeking an Acquisition Order if enough support can be raised.
The above is of course only an overview of the Landlord and Tenant Act 1987 Part III and those intending to embark upon this procedure should seek specialist advice from lawyers and surveyors bearing in mind that should the landlord successfully resist an application to the county court an order for costs could well be made against the participating leaseholders.