Pros and Cons of Buying the Freehold
Collective Enfranchisement - Getting Started
Outlining the qualification criteria and procedure in relation to collective enfranchisement (buying the freehold) of a residential leasehold building (flats)
By Nicholas Kissen, Senior Legal Adviser
This article originally appeared in Flat Living magazine, Winter 2011
It was not until the passing of the Leasehold Reform Act 1993 that flat owners were given the power to club together to force the sale of the freehold of their building. This process is called “Collective Enfranchisement” and applies to all kinds of buildings from large central London blocks to small conversions in the suburbs. As with all things in life, there are advantages and drawbacks when using the 1993 Act process to say goodbye to your freeholder.
Once you have acquired your freehold, full ownership of the building goes to the participating leaseholders, often via a company formed especially for this purpose. This has particular attractions where the management of your building leaves something to be desired. Once in the driving seat the leaseholders can select managing agents directly accountable to them or decide to self-manage. Either way, problems such as excessive insurance commissions or awarding contracts which may not give best value can be reduced.
For flat owners, as the years go by the time remaining on their lease reduces. This means the value of the flat decreasing to a point where it becomes difficult to sell to anyone other than a cash buyer. Making a flat more attractive to mortgage lenders is a key advantage of buying the freehold. When the freehold is purchased, the leases can be extended to 999 years and modernised where necessary so enhancing the value and marketability of the flats in question.
Buying your freehold is not a cure-all solution. Managing a building is a complex task with a host of laws and regulations to learn, ranging from asbestos to fire safety. For a leaseholder taking on the role of a company director, familiarity with the numerous duties and responsibilities this involves is essential. Engaging a professional and experienced managing agent to deal with the day-to-day running of the building does not absolve leaseholder-freeholders from ultimate responsibility for making sure it is done properly.
Disputes between co-freeholders are a common source of tension – and there is of course the delicate task of chasing late payers who are also your neighbours.
Getting as far as achieving the freehold purchase can be fraught with problems. The initial notice is not easy to draft and the valuation formula for the purchase price is dependent on a number of complicated variable factors. Buildings with, say, a commercial element or the presence of a caretaker’s flat, development value on the roof or a confusing title structure with intermediate/head-landlords can add to the complexity of the process.
If the freehold acquisition meets with strong resistance, maintaining the interest and enthusiasm of participating leaseholders is often a daunting task. The temptation to pull out should the process drag on and the costs increase is a strong one. There is also a need to ensure money is produced and documents signed in good time. With buy-to-let owners, perhaps living abroad, such co-ordination skills are particularly important.
However the drawbacks are not impossible to overcome. Working hand-in-hand with proactive, resourceful and expert solicitors and valuers skilled in anticipating problems from the outset and coming up with effective solutions should smooth the path to reaching your goal.