Buying the freehold for retirement housing

An option available to many leaseholders is to buy the freehold from the present landlord and thereby gain control of the management. Leaseholders of houses or bungalows can take this action individually but leaseholders of flats must act collectively.

Joint ownership of the freehold by the leaseholders, through a company set up by them, provides direct control of the management of the scheme. It also provides the opportunity to extend leases without having to pay a premium, thereby maximising your financial investment in the flat.

However, purchasing the freehold has the disadvantage of bringing with it responsibility which you might not necessarily welcome in your retirement. Leaseholders purchasing the freehold of a retirement block would be wise to delegate the management to a professional management organisation (preferably one that is a member of a trade body such as ARHM or The Property Institute), who will then be wholly responsible to the leasehold company rather than a landlord.

Almost all leaseholders of houses and bungalows should qualify for the right to buy their freeholds.

The Leasehold Reform Act 1967, with later amendments, provides an absolute right for qualifying leaseholders to purchase their freeholds from the landlord. You will need to be a long leaseholder, one where the original term was granted for more than 21 years.

The legislation is complex, so you will need detailed advice on your actual qualification for this right before you proceed.

The price you will pay for the freehold will vary according to how your house meets certain qualification criteria – some freeholds are valued as the value of the site only, while others are valued at modern market values. In either case, the value has to be assessed against procedures which are set down and there is recourse to the Tribunal to fix the price in cases where the landlord and the leaseholder are unable to negotiate a settlement.

Where your house or bungalow is part of a sheltered scheme with the benefit of services, you will need specific advice on your right to those services after purchase of the freehold; this will depend upon the terms of the lease.

The right of collective enfranchisement

The Leasehold Reform Act 1993 introduced the right of collective enfranchisement. This is the right for a group of leaseholders to form a company which can compel the sale of the freehold of the block of flats to them, irrespective of the owner’s intentions. As long as the leaseholders and the building meet the qualification criteria, this is an absolute right that cannot be resisted by the freeholder.

If you can achieve this, then the property should be valued by a qualified valuer and a notice of claim served on the freeholder. The procedure is relatively simple and the landlord must respond to your offer. The price you pay for the freehold must be assessed in accordance with rules set out in the legislation, and, in cases of dispute, there is recourse to the First-tier Tribunal. The whole process should take between 6 and 12 months to complete.

In order to qualify for enfranchisement the building must contain 2 or more flats and at least two-thirds of these flats must be leasehold. The right to enfranchise must be exercised by a company which must include leaseholders from at least half of the flats in the building. There is no requirement for a specific period of residence or ownership of the flat.

Find out more: collective enfranchisement

The Landlord and Tenant Act 1987 provides the right of first refusal. If the landlord is proposing to sell the freehold, they must first offer it to the leaseholders. This also applies when a receiver is selling the freehold of a bankrupt company.

More than half of the qualifying leaseholders must agree to the offer and the landlord is not obliged to negotiate the price, nor is there any statutory guidance on how this should be set. The right is no more than the legal requirement that the landlord must make the leaseholders an offer, but it usually only represents an opportunity to buy at market value.

Where the owner fails to provide the offer of first refusal (or does so and then sells to someone else at a lower price), as the leaseholders you can compel the new purchaser to sell the freehold back to you at the price they paid for it.

Failure to provide the right of first refusal is a criminal offence. If you believe that the freehold of your scheme has been sold, you may wish to contact LEASE for further advice.

The right of first refusal does not apply where the landlord is a housing association.

Find out more: right of first refusal