The collective right to enfranchise
Leasehold Reform, Housing and Urban Development Act 1993.
What is it?
This gives the right for tenants of flats acting together to purchase the freehold and any headleases of their building. In order for the building to qualify under the Act, it must:
- be an independent building or be a part of a building which is capable of independent development; and
- contain two or more flats held by qualifying tenants; and
- have at least two thirds of the flats held by qualifying tenants.
In order to be a qualifying tenant you must have a long lease which means a lease which, when originally granted, was for a term of more than 21 years. However, you must not own three or more flats in the building. You cannot be a qualifying tenant if you hold a business lease.
Notwithstanding the above, the building will not qualify if:
- it comprises four or less units and has a “resident freeholder”;
- more than 25% of the internal floor space (excluding common parts) is used for non-residential purposes;
- the building is part of an operational railway.
“The collective right to enfranchise gives the right for tenants of flats acting together to purchase the freehold and any headleases of their building.”
Anna Favre
Partner, Residential estates
How do I prepare for a claim?
Any qualifying tenant can give a notice to his landlord or the managing agent requiring details of the various legal interests in the block.
How is the claim made?
It is important to be aware that most of the time limits imposed on the procedural stages of the claim are strict and a failure to do something within the required time frame can have dire consequences for the defaulter.
Disputes
If any terms of acquisition (including the price) remain in dispute after two months following the date of the counter-notice, then either party can apply to the First-tier Tribunal (Property Chamber) (or, if the property is in Wales, to the leasehold valuation tribunal) for the matter in dispute to be determined.
This application must be made within six months following the date of the counter-notice or the claim is lost.
Most claims are settled by negotiation. However if a First-tier Tribunal is required to make a determination, then there is a right to appeal that decision to the Upper Tribunal (Lands Chamber) if permission is given to do so.
Completion
Once the terms of acquisition have been agreed or determined by the First-tier Tribunal, then the matter reverts to a conveyancing transaction with the parties entering into a sale contract on the terms agreed or determined and thence to completion.
If the matter proceeds to completion, then the participating tenants, through their nominee purchaser, will become the freeholder of the building, subject to the various flat leases. In effect, the participating tenants will replace the existing freeholder. This will put them in a position to grant themselves extended leases.
There may be tax consequences on granting an extended lease – particularly for second home owners.
There will also be responsibilities. The participating tenants will become responsible for the management of the building and the administration of the service charge account in accordance with the covenants in the original leases.
If the nominee purchaser is a company, all participators will be shareholders and some will be officers of that company.
These are all matters on which clear professional advice will be needed.
It is important to note that an individual tenant has no right to become a participating tenant – even if he is a qualifying tenant. It is a matter for the tenants to resolve between themselves. You can always ask to be allowed to join in, but you will have no remedy if refused. If a group does form without you – and does not need you – you may well find yourself left out.
However, if you are left out, that need not necessarily be the end of the road. This is because of the second major innovation that was introduced by the 1993 Act – the individual right to acquire a new lease.
“The freeholder must give his counter-notice, being a date not less than two months from the date of the service of the Initial notice.”
Amy Jackson
Partner, Residential estates
Snapshot: building qualifications
The building must have at least two thirds of the flats held by qualifying tenants.
The building will not qualify if more than 25% of the internal floor space (excluding common parts) is used for non-residential purposes.
year lease term
The extended lease will be for a term expiring 90 years after the end of the current lease.