Swabey & Co.

A MORE PRACTICAL APPROACH

Collective Enfranchisement

We specialise in this field and aim to offer an excellent customer service. At the same time we offer competitive fees compared with many larger firms (see fees). Whilst based in London we can take on leasehold enfranchisement cases in the North of England, for example within the cities of Manchester, Leeds and Birmingham where there are also a lot of leasehold flats. Practitioner: Brett Swabey

Why should you buy the freehold of your property or extend your lease?

There are a number of reasons, the principal ones being:

  1. 1.To secure your long term investment in your property (which is otherwise a wasting asset).
  2. 2. To enable you (as leaseholders) to take over the management of your building.
  3. 3. To deal with the lack of an effective management structure due to an absentee landlord.
  4. Sometimes a combination of reasons is involved.

    What is less commonly known is that the valuation provisions in the current legislation are in your favour as leaseholders, making the purchase of your freehold a wise long-term investment. This is particularly relevant when the leases still have more than 80 years unexpired.

Collective Enfranchisement

What are your options?

  1. 1. Buy your building.
    The process is known as Collective Enfranchisement (or sometimes Leasehold Enfranchisement). In simple terms, at least two thirds of the tenants in your building must be long leaseholders (a long lease is a lease originally granted for 21 years or more) and you need at least half of all the flat owners in the building to co-operate in the scheme. We would recommend that you consider this as an option if your lease has less than 90 years unexpired or if you are experiencing management problems caused by your landlord's activity or inactivity. The relevant law is contained within the Leasehold Reform Housing and Urban Development Act 1993.

  2. 2. Extend your lease.
    The process is known as Lease Extension. Your need to have a long lease and to have owned the property for at least 2 years. You may want to consider this option if it is not practical to get all the other tenants to join with you in buying the freehold, or if there are other reasons making this difficult (for example, the price of the freehold may be more than you can afford). The relevant law – as for Collective Enfranchisement – is contained within the 1993 Act.

  3. 3. Right to Manage.
    Introduced by the Commonhold and Leasehold Reform Act, 2002 the relevant law came into force in September 2003. The qualifying criteria are as for Collective Enfranchisement (with a minor difference in the case where there is a resident landlord). As a tenant participating in such a scheme you may acquire the right to manage your property. Your landlord will be allowed a share (or shares depending on his interests in the building) in the new management company (called a Right To Manage Company or RTM), but essentially the power to manage will have shifted to you. You will still have to pay a ground rent (if there is one) and you will still need to comply with the terms of your leases. You will, however, be able to appoint a new managing agent if you wish. This may be the best option in the case of mismanagement where the leaseholders cannot afford to buy the freehold (it will not stop you from acquiring the freehold later on).

How We Can Help

  1. 1. How much will it cost?
    The 1993 Act sets out the valuation method for compensating your landlord for giving up his freehold (or granting a longer lease) and you may wish to get a valuation from a suitably qualified valuer at the outset. We may be able to help you organise a basic valuation. You will also need to budget for legal and valuation costs, including that part of your landlord's for which you will be liable. We should be able to estimate these costs.
  2. 2. What about the process?
    The process of Collective Enfranchisement is not unduly complicated but you will need to be well prepared at the outset. We will give you the necessary guidance by giving you clear and straightforward advice to enable you to proceed with the minimum of difficulty.
    The Process Involves:
    •    - investigating title to your freehold (for example checking that your landlord has not granted additional leases of which you are unaware / and the levels of ground rent payable);
    •    - establishing a company to buy the freehold and drawing up an agreement between yourself and your co-tenants (sometimes called a Participation Agreement). This will ensure that everyone involved is aware of their responsibilities and their duty to contribute towards the price. It will also require those who sell their flats to have their buyers step into their shoes;
    •    - drawing up and serving the required notice on your landlord, and later, if necessary, preparing an application to the Leasehold Valuation Tribunal (if the price or other matters cannot be agreed between landlord and tenants);
    •    - completing the conveyancing process (to transfer the freehold to your new company) and drawing up new leases (or variations of the original leases to increase the lease terms, usually to 999 years). This will involve settling any outstanding service charge issues with your landlord (on the transfer) and having your lender approve the new lease as security for their mortgage.
    In the case of a lease extension, it will be important that the notice served on your landlord is accurate and valid and that the new lease (when granted) is properly drawn up.

    We would recommend strongly that you obtain expert legal advice.

    This is the service we would like to provide to you.

  3. 3. Who to Hire and When?
    It is most important that you engage professional assistance at the start of the process. This is particularly the case with Collective Enfranchisement as many different parties will be involved.

    In deciding on a solicitor you should be satisfied that they will look after your interests; that they have relevant experience; that they will give you good value for money; and that they will keep you informed and abreast of the process. You will also need to engage an expert valuer to give an initial valuation of the likely cost of acquiring the freehold (or premium for a new lease) and you should seek similar qualities in your valuer. You may also wish your valuer to represent you at the Leasehold Valuation Tribunal if they have to decide the price of the freehold.

    We are well placed to give you timely advice and to work with you in achieving your objectives. Our philosophy is that we work with our clients rather than for them. Good communication between us will be essential.

  4. 4. What if you are Undecided?
    You could put up with a bad landlord or sell your leasehold property and buy a house (freehold - no landlord!) - we could help you with this - OR come to us for an initial consultation concerning Enfranchisement.

    We are happy to give preliminary advice over the telephone with regard to your eligibility to enfranchise and as to whether this would be a good option in view of your circumstances.

    We can also offer an initial 45-minute consultation to assess in more depth your proposal to acquire your freehold, to explain the process, alert you to possible pitfalls and inform you of the likely costs involved. We will usually make a small charge for this but if so we will agree this with you beforehand.

    Bearing in mind the potential pitfalls there are for the unwary and, on the upside, the investment value you will create on success a little advice early on can be very worthwhile.

About Legal Fees

"It's unwise to pay too much but it's worse to pay too little. When you pay too much, you lose a little money, that's all. When you pay too little, you sometimes lose everything because the product you bought was incapable of doing the things it was bought to do. The common law of business practice prohibits paying a little and getting a lot…it can't be done. If you deal with the lowest bidder it is well to add something for the risk you run, and if you do that, you'll have enough to pay for something better."

John Ruskin's philosophy on how much to pay is still pertinent and you should be wary of instructing on the basis of price alone. It is of course important that you agree a fair and transparent fee arrangement with your Solicitor – both for you and for your advisor. This will give both parties the confidence required for a good working relationship.

If you instruct us we will provide an estimate of costs for each part of the process (Collective Enfranchisement). In most cases the estimate will be close to what you will have to pay. With less expensive accommodation than many of the larger firms involved in the Collective Enfranchisement field we are able to offer more competitive rates and a more hands on approach than many of our competitors.  

Freehold Ownership – what you need to know

Collective Enfranchisement

Your goal, but remember that it comes with responsibilities...

A typical scenario is as follows: tenants aggrieved due to landlord's lack of interest in maintaining the building and the managing agent's lust for ever more fees for doing nothing; tenants instruct solicitor and relieve landlord of his or her freehold; company is set up and shares issued to tenants; lead tenant sells his or her flat and accidentally takes company register; annual return and accounts are not filed and Companies House raise a fine, etc… Other difficulties that may arise are, for example:

  1.    - Major Works need carrying out and section 20 notices need to be served. Most tenants agree on the contractor and costs but one, who was on holiday, does not. He now wants to set aside the contract already signed on behalf of the tenants.
  2.    - One tenant is consistently late with paying his service charge, but no one wants to take the bull by the horns and sue him because he is otherwise quite a nice chap.
  3.    - The person responsible for renewing the buildings insurance forgot, but not long after the building is damaged by a flood.
  4.    - Questions relating to the development of additional space such as a loft area accessible by the top flat owners only.

What I think these examples tell us is that freehold ownership comes with responsibilities and that there are a number of pitfalls to avoid. The best way to avoid these potential difficulties is to be prepared in advance, and where appropriate to take specialist legal advice at the start of the process. In this respect a few hundred pounds spent on timely advice can often prevent difficulties later on. Another consideration is whether to hire a managing agent (sometimes this could even be the same managing agent who worked for your landlord - in your employ he is likely to be more obliging). In other situations you will clearly want a new managing agent and if the building is a converted house with just four or five flats a small firm may be more suited to this task than a national firm with expensive offices and many employees. 

Lease Extension – when is the right time?

Long leases of residential property have, historically, typically been granted for 99 or 125 years with ground rents increasing every 25 or 33 years. In particular during the late 1980s many houses were converted into flats and sold off on 99-year leases. Those that have not been extended may now have less than 80 years left un-expired. So when is the best time to apply for a lease extension?

  1. 1. If at all possible apply before the lease term goes below 80 years; the reason for this is because to this level the valuation provisions favour leaseholders. Below 80 years the premium payable increases significantly.
  2. 2. If you have missed the 80-year point the next big influencing factor is the availability of mortgage finance. Most lenders will be looking for minimum terms in the range of 50-70 years on the basis of a 25-year mortgage term i.e. 25 – 45 years un-expired at the end of the loan term. There are variations here between lenders, but if you have less than 70 years to offer the saleability of the property will be reduced.
  3. 3. Personal factors – some individual considerations are as follows: 
    •    - Do you have the funds available? If not is your current lender willing to make a further advance? (many lenders are happy to finance lease extensions as they obtain a greater level of security in the process);
    •    - Are you planning on selling the property in the foreseeable future? If the answer is YES then a lease extension is probably a good idea – a long lease term with a peppercorn (zero) ground rent will be more attractive to prospective buyers than say a 72 year term with a £250 p.a. ground rent;
    •    - Are there other leaseholders in the building who wish to extend their leases or perhaps there is sufficient support for a freehold enfranchisement? Bear in mind that you will be responsible for your landlord's reasonable legal and valuation costs (as well as your own) and that joining forces with other leaseholders even if only to apply for lease extensions may reduce this burden;
    •    - Have other lease extensions just been completed in the same building? This could be an advantage as it may make valuation simpler and consequently the premium easier to agree with your landlord;
    •    - On the other hand if you have just retired have limited resources and are not planning on moving in the foreseeable future it may be prudent for you to wait until you are clearer as to your financial position.

Whichever way you proceed it is important to realise that investment in property should be seen as a long-term investment.

As with all non-specific advice the above is no substitute for appropriate and timely professional advice. We will be pleased to assist.