Collective Enfranchisement Solicitors

We don’t currently offer this service but please do speak to us as we can recommend people who can assist you.

Would you like to buy a freehold?

If you own a leasehold flat, you and the other flat owners in your building may be able to buy the freehold of your homes under a process called collective enfranchisement. At Birkett Long, we have a specialist leasehold team with experience advising clients in relation to all aspects of buying, selling and owning leasehold property and enfranchisement.

What is collective enfranchisement?

There is a legal procedure that allows leaseholders as a group (it is not an individual right) to compel the freeholder to sell their interest in the building.  Buying the freehold offers the leaseholders an opportunity to extend and/or vary the leases, especially where the leases do not comply with current regulatory requirements.  It also gives (in most cases) a “clean break” from the freeholder and gives them the opportunity to manage the building themselves.

Key collective enfranchisement questions

What is the qualification criteria?

• Two-thirds of the flats must be owned by “qualifying tenants”, that is leaseholders whose leases were initially granted for at least 21 years.

• The participating leaseholders, those leaseholders who want to join in the enfranchisement, must own at least half of the flats in the building.

•  A leaseholder cannot participate if they own three flats or more in the building. All the flats owned by such a person must be discounted for the purpose of calculation whether the leaseholders reach the “one half” threshold.

• If the building is partly non-residential, leaseholders cannot enfranchise if the non-residential element is more than 25% of the building.

What is the basic enfranchisement procedure?

The first stage is to establish whether the leaseholders qualify and collate information on the property (specifically lease and Land Registry titles). Once this is established the participating leaseholders should enter into a participation agreement with the other participants which will contain primarily, obligations towards payment of the premium and costs.

A notice (known as an Initial Notice) is prepared setting out the terms of the collective enfranchisement, namely the area of land the leaseholders will be acquiring, the premium and other terms where required.  The notice sets out a “Response Date” by which the freeholder must respond to the notice. That date must be at least two months after services of the notice.

The freeholder serves a Counter-Notice stating what terms they accept and counter proposals to those terms they do not accept. 

There then follows a period of at least two months when the parties, generally through their respective Valuers, will try to negotiate an agreement.

If the freeholder does not respond to the Initial Notice, or responds late, the leaseholders are entitled to acquire the freehold on the terms set out in the Initial Notice. There is a procedure for enforcing this through the County Court.

If there are outstanding issues or there has been no negotiation in the preceding two months, the leaseholders must, within six months of the date of the freeholders’ Counter-Notice, apply to the First Tier Tribunal (“FTT”) for a decision on the terms which have not been agreed.

The FTT will provide directions for both parties to comply and will eventually set a hearing date.  Whilst the directions are ongoing, both parties can still negotiate.

Ownership as Company or Joint Individuals?

The leaseholders will need to consider how they wish to hold the freehold on completion which can either be in joint names or as a company.  

A company is the better option as it makes matters easier in the event one of the leaseholders sells their flat.  It also means that the obligations and liabilities of running the freehold will be vested in the company and not the individual leaseholders.  This is known as the concept of limited liability. The main disadvantage with a company is that there are annual running costs for filing accounts and an annual return.

Should the leaseholders own the freehold as joint individuals we would advise a trust deed between them to ensure that each leaseholder carries out their freeholder obligations.   The trust will also ensure that each party makes arrangements to ensure an incoming owner carries on these obligations in the event of a sale/change of ownership.

Price payable for freehold

The price payable for the freehold depends on a number of factors, including the market value of the individual flats and the length of the leases.  The price will be higher if the leases have less than 80 years to run.  It will be substantially higher if the leases have significantly less than 80 years to run.

Leaseholders should approach a valuer with expertise in this field to provide advice on a price before the Initial Notice is served. This is because, by law, the price in the Initial Notice must be “realistic”, so valuation advice is needed at the outset.

A valuer is also likely to be required by both freeholder and leaseholders for negotiations, and to give expert evidence to the FTT if agreement cannot be reached. We work with a number of valuers specialised in this area and can put you in touch with them if required.

What do the Leaseholders acquire?

The freehold of the building in which the flats are situated and, normally, any communal grounds, and buildings within the grounds that form part of the freehold title.  This is provided there are grounds and buildings that the leaseholders have a right to use under the leases. If there are any head leasehold interests in between the freehold and the leases of the individual flats, they are acquired also.

What collective enfranchisement costs will be payable?

In addition to the price (referred to as the premium), there are certain fees that have to be reimbursed to the freeholder. These include costs incurred in checking whether the participating leaseholders have the right to acquire the freehold, costs relating to the conveyance of the freehold, and the costs paid by the freeholder to a valuer for advice on the value of the freehold.

The freeholder cannot recover any costs from leaseholders in connection with any FTT proceedings.

Is the leasehold property a house?

There is a separate procedure for acquiring the freehold if the property is a house.  Information regarding this process can be supplied on request.

Is your freeholder missing?

There is a separate procedure for a collective enfranchisement claim if your freeholder is missing.  Information regarding this process can be supplied on request.

Lease Extensions after Collective Enfranchisement 

Please note that for tax purposes, HMRC will normally regard the purchase of the freehold and grant of a 999 year lease to flat owners (to replace their current ones) as one transaction with no risk of tax arising on the grant of the new lease.  This is on the basis that the lease is granted shortly after the purchase of the freehold.  

If there is a significant delay between the purchase of the freehold and the grant of the lease, HMRC may regard them as separate transactions.  If this were to happen, the grant of the lease (at a 999 year term for a nil premium) could be interpreted as a gift or benefit in kind and could tax the leaseholders as freeholder on the benefit being conferred.  

Therefore leaseholders should extend their leases to 999 years as soon as after completion of the purchase of the freehold.  Should you have any further concerns/queries please consult with a tax adviser.