Typically the freehold of a block of flats is owned by a separate landlord. In many cases that landlord is also responsible for managing and maintaining the building and service charges are paid to them to cover the cost of managing, maintaining and insuring the building. There may also be a separate third party management company who deals with this.
The individual flats are then let on long leases (typically 99 years, 125 years or 999 years). This means that the owners of the leasehold flats own that property for a fixed period of years only.
The Leasehold Reform, Housing and Urban Development Act 1993 gave leaseholders the right to get together to buy the freehold of their block of flats provided certain criteria are met. This process is known as “collective enfranchisement”.
Clarke Mairs LLP has extensive knowledge and expertise in informal freehold purchase transactions and statutory collective enfranchisement claims and can guide you through the whole process of buying the freehold of your block of flats – from valuation to completion – providing clear advice at each stage.
Below you will find some brief information about the process of buying the freehold of your block of flats and answers to our frequently asked questions.
In addition, some useful independent guidance on leasehold flats and the collective enfranchisement process can be found at www.lease-advice.org
Get a Quote
For further information about the process of buying the freehold of a block of flats and a detailed quotation, please complete the contact form below. A quotation will be emailed to you within two working days. Alternatively, contact Katy Rushworth directly on 0191 245 4725 or firstname.lastname@example.org for further information.
THE COLLECTIVE ENFRANCHISEMENT PROCESS
Usually the leaseholders buying the freehold of their block first incorporate a company. The company then acquires and holds the freehold of the building on behalf of the leaseholders. In most cases each of the leaseholders hold one or more shares in that company. However, there is no hard and fast rule about this and how you hold the freehold can be tailored to suit your particular circumstances.
We would always recommend that as soon as possible at the outset of any collective purchase transaction, whether voluntary or statutory, all leaseholders taking part enter into a participation agreement which will govern the relationship between all of the participants. In particular the participation agreement will set out the proportion of the purchase price and costs that each leaseholder shall contribute to the final purchase and what they will each get in return.
There are two routes which may be followed to buy the freehold of your block of flats.
Voluntary Purchase of the Freehold
You approach your landlord and ask them to sell the freehold to you. It is entirely up to your landlord whether they are prepared to do so or not. Many landlords will make a reasonable offer and so it is usually worth asking but if they choose not to, you can’t force them (under the voluntary route).
If you can agree the terms of a purchase with your landlord, a voluntary purchase of the freehold is usually quite straight forward and so it can be completed more quickly and the legal costs are considerably lower than exercising your statutory right (see below).
If your landlord is willing to sell the freehold to you in this way then there are no statutory requirements that must be complied with in terms of who must take part – in theory one tenant on their own could buy the whole freehold (subject to the [Rights of First Refusal].
Statutory Right to Collective Enfranchisement
The Leasehold Reform, Housing and Urban Development Act 1993 was brought in to give the leaseholders of flats in a block the right to collectively purchase the freehold. Under this legislation, provided you satisfy certain criteria, you can force the landlord to sell the freehold of the block to you.
The main criteria are as follows:-
- The building must contain at least two flats held by “qualifying tenants” (leaseholders with long leases).
- The total number of flats owned by qualifying tenants in the block must be at least two thirds of the total number of flats in the block.
- At least half of the qualifying tenants (or both where there are only two flats in the building) must take part in the collective enfranchisement.
- Importantly, if a person or company owns 3 or more flats in the building then they do not count as a qualifying tenant.
To exercise the statutory right you need to follow a strict legal process and so it tends to be considerably more time consuming and the legal fees are higher. Using solicitors experienced in this area can make the process as quick and cost effective as possible.
Frequently Asked Questions
Why should I buy the freehold?
There are many reasons why leaseholders may wish to buy the freehold of their block of flats. In many cases they simply want more control over the building and the management of it. In other cases the leases are getting shorter and the leaseholders wish to buy the freehold collectively rather than individually extending their leases.
It’s not unusual that leaseholders wish to buy their freehold to prevent their landlord developing the property further, e.g. building in the grounds or converting the loft space into additional flats.
If you have an issue with your block of flats and think buying the freehold may be the solution, give us a call and we can discuss this with you.
If I buy the freehold do I still need to extend my lease?
Yes – when the freehold is bought by the leaseholders this is usually by a company incorporated by the leaseholders. That company simply steps into the shoes of the previous landlord. The individual leases of the flats remain unchanged. Where those leases are short, they will still be short leases which, for example, may need to be extended prior to selling a flat.
It may be that you require changes to be made to the existing leases, e.g. where the leases are out of date or you wish to remove the requirement to pay ground rent.
In most cases after buying the freehold it is appropriate to surrender the existing leases belonging to the participants and put in place new 999 year leases at a peppercorn (nil) ground rent. This ensures that the term of the leases held by participants will never become an issue and that ground rent will no longer be payable under the terms of the leases belonging to participants.
However, this is not appropriate in all circumstances and there is no rule as to what should happen after buying the freehold. This is entirely something for you to decide between those of you who wish to participate. Ideally, we always advise that you make this decision as early as possible in the enfranchisement process and include the terms of this agreement in your participation agreement.
What if not all of the leaseholders want to take part in the collective purchase?
Provided the owners of at least one half of the flats in the block take part in the collective purchase then in most cases there will be a statutory right to buy the freehold of the whole building.
The main issue this usually causes is financing the purchase. Whilst this does mean that there are less people contributing to the overall purchase price and costs, at some point in the future it is likely that the leaseholders of the other flats will need to extend their leases. When they do so they will need to pay a premium to the company for that.
How much will the freehold cost us?
You will need to pay to the landlord the purchase price for the freehold.
In most cases you will also need to pay your landlords legal and valuation costs. If you agree terms voluntarily with your landlord they will usually agree a fixed price for those costs at the outset. If you serve a formal claim notice under the statutory right you have, then you must pay your landlord’s reasonable costs of dealing with that enfranchisement.
You do not pay your landlords cost of negotiating the purchase price and terms of the transfer.
In addition, you will need to pay your own solicitor’s and valuer’s costs.
Do I need a valuation?
The only way to obtain accurate advice as to the amount you are likely to have to pay for the freehold is to obtain a valuation from a valuer with experience in this area of work.
We can provide details of valuers who we have worked with and would recommend. Alternatively, you can search local valuer’s to you here http://directory.lease-advice.org/ or http://www.alep.org.uk/find-a-practitioner .
If you need to serve a claim notice under the statutory right you have then you will need to state in that notice how much you propose paying for the freehold and this needs to be specifically apportioned depending on the particular property.
It is important that the figures you propose are reasonable. If they are not, your notice may be considered invalid.
I have paid for my landlord to carry out a valuation. Why do I need another one?
Any valuation your landlord carries out will almost always be for their purposes and may reflect the price the landlord wants rather than a true valuation. It’s unlikely they will let you have a copy of it but even if they do, it has been prepared for them and so you should be reluctant to rely on it as being accurate advice to you.
Even after you have paid your landlord for a valuation there is no guarantee they will have a professional valuation carried out or that they will make a reasonable offer to you. If they don’t and you have to serve a statutory notice, it’s likely they will have a separate valuation carried out and you will need to pay for that as well.
Does it matter that Clarke Mairs is not local to you or the property?
No – we act for people all over the country and abroad without any difficulty. Most communication takes place by phone and email and most documents can be emailed or posted to you.
I live in a development of several blocks. Can I buy the freehold of the whole development?
The way the legislation is drafted, it deals only with individual blocks. Therefore, in order to buy the freehold of the whole development, it’s necessary to treat each block separately.
You may or may not be able to acquire all of the common areas such as gardens and parking areas. This is something we would consider and advise you on as part of the collective enfranchisement process.
If you are able to agree a purchase with your landlord then you can agree whatever terms you are both happy with to include buying the freehold of the whole development.