Collective Enfranchisement

Leaseholders collectively have the power to join together to buy the freehold of their building from the freeholder (also referred to as “the landlord”) in certain circumstances under the Leasehold Reform, Housing and Urban Development Act 1993 – this process is known as ‘collective enfranchisement’ or ‘leasehold enfranchisement’. It allows the flat/apartment owners to collectively own the freehold to their building, which gives them the power to take control over how their building is managed and developed and also means that they can extend their leases and abolish ground rent payments.

No, unfortunately it’s not quite that simple! To be eligible for collective enfranchisement there are certain criteria and conditions which need to be met, both in terms of your building and also in relation to who is a ‘qualifying tenant’ and able to take part. In addition there legally has to be a minimum number of participants. Herrington Carmichael can give you quick and easy advice from the outset on navigating these tricky areas of law.

Prior to submitting a claim it is worthwhile to take advice from a solicitor and a surveyor. The role of the solicitor is to advise on whether the right of collective enfranchisement will apply, and if so they can represent the participating qualifying leaseholders throughout the claim process. Meanwhile, the surveyor will be able to advise on the premium (i.e. the price that the leaseholders should pay for the freehold) to put in the formal application to the freeholder.

There is a set process for enfranchisement that has been established by law. So, once the initial advice has been taken a formal application can be served on the freeholder. This will state that the collective enfranchisement rights are being exercised, and confirm the price that the leaseholders are willing to pay for the freehold. Following service of this initial notice there is a 2 month period in which the freeholder can serve a counter-notice stating whether they accept the claim, and if so, whether all of the terms in the initial notice (including the price) are agreed. If any terms are not agreed there is a further 2 month period in which the leaseholders and the freeholder can negotiate terms. Where agreement is not reached, there is a further 4 month period in which the freeholder or the leaseholder may apply to the relevant tribunal for them to make a decision on the claim. Negotiations can continue within this time. It is therefore worth taking into account that the process for collective enfranchisement can be a relatively lengthy process.

If agreement cannot be reached, and if the matter is referred to the tribunal, they will make a formal decision on the terms on which any enfranchisement claim should proceed. Following the determination of the tribunal in favour of the enfranchisement both parties should enter into a formal contract for the sale of the freehold and then proceed with the sale and purchase transaction.

When exercising these rights, leaseholders should be aware that they will be responsible for both their own legal and surveyor’s costs as well as the reasonable legal and surveyor’s costs of the freeholder. Should the matter be referred to the tribunal, each party will be responsible for their own costs from that point.

A Participation Agreement is a legally binding contractual document entered into between the participating leaseholders in a collective enfranchisement claim, and is a crucial part of the process – especially in projects with larger numbers of tenants involved. The Agreement sets out how decisions are made between the tenants, and also the financial contributions that need to be made (and at what stage in the process). This gives security and certainty to all the participating leaseholders that their project will not get into difficulties further down the road if anyone chooses to drop out.