Freehold Enfranchisement

The basics – Collective Enfranchisement/Lease Extension

In England there are two main ways of owning property – Freehold or Leasehold.

Freehold means you own the building and the land it stands on – you are the ‘freeholder’, otherwise known as the ‘landlord’.

Leasehold means that you own a flat/maisonette (leasehold houses exist but are rare) but not the land it sits on – you are the ‘leaseholder’, otherwise known as the ‘lessee’.

A flat/maisonette is a self-contained unit within a larger building. You have a contract/tenancy with the freeholder for that flat/maisonette which details the legal rights and responsibilities of both parties – this is the lease. The original lease term granted when a flat/maisonette is first sold is long, usually on 99 or 125 year terms (but can be as long as 999 years).

As the lease term is fixed at commencement, it will decrease in length year by year. Over time the value of the flat/maisonette will decline until the eventual expiry of the lease, at which point ownership of the flat reverts back to the landlord.

In 1993 The Leasehold Reform Housing and Urban Development Act was introduced. This, and subsequent amended legislation (in particular the Commonhold and Leasehold Reform Act 2002), provides most leaseholders of flats with the legal right to require their landlord – the freeholder – to sell them either an extended lease on defined terms, or, in conjunction with other lessees in the block, to acquire the freehold (known as ‘Collective Enfranchisement’), at a fair price, subject to qualifying criteria.

Lease extensions can be agreed outside of the ‘The Act’ but as this type of extension is not governed by the legislation, a freeholder is able to dictate terms – these terms generally greatly favour the freeholders.

Our role as surveyors is to act for our clients, whether the lessee or freeholder, initially in providing valuation advice, and subsequently acting in negotiations with the other side to reach a settlement. Ultimately, in very rare cases, where agreement cannot be reached, acting as an ‘Expert Witness’ at a property Tribunal.

Collective Enfranchisement

The Leasehold Reform Housing and Urban Development Act 1993 (as amended by the Commonhold and Leasehold Reform Act 2002) gives qualifying lessees the right to compel the sale of a freehold (if there is an intermediate lease – otherwise known as a ‘head lease’ this must be acquired as part of the acquisition).

To commence a collective enfranchisement claim a Notice (Section 13 Notice) must be served by a Nominee Purchaser on behalf of the participating lessees. Before a Section 13 Notice is served a substantial amount of preparation work is required by the solicitor acting on behalf of the participating lessees. This should all be done prior to the surveyor’s initial involvement to avoid unnecessary costs. The solicitors will be checking if the building complies, there are sufficient qualifying lessees, sufficient qualifying lessees wishing to participate and an appropriate company has been set up by/for the relevant for the proposed purchase.

Once all of this is done, if we are instructed to act on behalf of the lessees (the Nominee Purchaser) we are then instructed to proceed as below.

Advisers Roles – The Surveyor – Collective enfranchisement

This is our role and generally falls into three sections.

1. If acting for the lessees (the Nominated Purchaser) we will carry out the freehold enfranchisement assessment and provide a proposed premium figure to be included in the initial Notice – (Section 13 Notice). Initially we will need to visit the block, inspect a number of the flats internally, and review the freehold title documents and the lease documents. At this point we should be able to provide the assessment. Please bear in mind that for a premium assessment we cannot produce definitive values. We will be providing a range within which we reasonably expect the premium to be. In addition we will provide a proposed premium figure to be included in the initial Section 13 Notice which your solicitors will be serving on your behalf.
   
   If acting for the freeholders the process is very similar. We will carry out the freehold enfranchisement assessment and provide a proposed premium figure to be included in the Counter Notice – (Section 21 Notice). Initially we will need to visit the block, inspect a number of the flats internally, review the Section 13 Notice that has been served, the freehold title documents and the lease documents. At this point we should be able to provide the assessment. Please bear in mind that for a premium assessment we cannot produce definitive values. We will be providing a range within which we reasonably expect the premium to be. In addition we will provide a proposed premium figure to be included in the Section 21 Counter Notice which your solicitors will be serving on your behalf.
   
   Whether we act for the lessees or freeholders, the lessees (Nominated Purchaser) are responsible for our fees under ‘The Act’.
2. The freeholders Counter Notice (Section 21) needs to be served by the date specified in the Section 13 Notice (This must be at least two months after the date of the Section 13 Notice). This Notice will either accept the premium proposed in the Section 13 Notice or contain a higher proposed premium figure. If a higher figure is stated that the lessees (Nominated Purchaser) do not wish to accept, it is normally at this point that we are employed to act further, this time in negotiations with the other sides appointed surveyor. Whether we act for the lessees (Nominated Purchaser) or freeholders, whichever is our client is responsible for our fees in acting in negotiations. The vast majority of cases are settled by this point.
3. If the matter has not been settled by this point then ultimately the case will need to be referred to the First Tier Property Tribunal. This is a leasehold tribunal where both the lessee (Nominated Purchaser) and landlord/s have representation – the surveyors are acting as ‘Expert Witnesses’ (first duty is to the tribunal) legal representation (barrister) is normally required for both parties. Each party is responsible for their own surveyors and legal costs which can amount to thousands of pounds – for this reason referral to a tribunal is considered a last resort option, and the number of cases that proceed to tribunal is relatively very small.

Advisers Roles – The Solicitor

You will need a solicitor, ideally one who specialises in Leasehold reform, to act for you.

• For a Collective Enfranchisement case the solicitor should be able to:
• Check if the building complies and that there are enough qualifying tenants to be able to proceed.
• Prepare a Participation Agreement where appropriate for all the participating tenants to enter into.
• Assist the lessees in choosing/arranging the vehicle for the Nominee Purchaser ie. setting up a company.
• Collate and prepare all the necessary information for the application, serve relevant Notices, respond to Landlord/s requests for information/Counter Notices.
• The conveyancing involved in the claim.
• Amendments of terms of leases after enfranchisement where applicable.
• Registration with Land Registry.

If you do not have a solicitor who can act for you we have long term relationship with local firms of solicitors who specialise in this type of work. Their fees are very competitive and their service excellent.

We would be happy to put them in touch with you if required. For further details please contact us on 01732 752099.

Association of Leasehold Enfranchisement Practitioners (ALEP)

ALEP represents a diverse group of organisations with the following aims:

• To promote best practice among members through an evolving code of practice.

• To provide potential clients with details of member organisations with sufficient knowledge, intent and capacity to provide a satisfactory service.

• To act as a forum for member organisations for the exchange of ideas and to increase standards throughout the sector.

• To represent members’ interests to government, the press, other associations and the general public.

ALEP website www.alep.org.uk

‘LEASE’

The Leasehold Advisory Service (LEASE) is an executive non-departmental public body, sponsored by the Department for Communities and Local Government.

On the LEASE website – http://www.lease-advice.org – there is extensive information on the Leasehold Reform Act (as amended) including guidelines on Lease extension and Freehold enfranchisement.

The advice guides on the site include:

• Living in Leasehold Flats – A guide to how it works
• Collective Enfranchisement – Getting Started
• Collective Enfranchisement – Valuation
• Application to the First Tier Tribunal (Property Chamber)

To book an appointment for properties in Kent please contact our Head Office on 01732 752099 or for properties in London on 020 80579890 or by e-mail to office@selkentsurveyors.co.uk