Frequently Asked Questions

FAQ groups:

36 frequently asked questions in Freehold purchase and collective enfranchisement:

What is enfranchisement?

Enfranchisement or Freehold Enfranchisement is also sometimes termed Freehold Purchase. All these terms refer to increasing the value of your flat by collectively with other flat owners buying the freehold of your block

I already own my flat, what is the point?

If you own the lease you do not own the flat. Leaseholds and Freeholds are different rights. When you buy a flat you buy a lease, you buy the right to reside in a part of somebodies Freehold property. It is the freeholder who owns the building, when each lease expires the flats revert to him. He can then create a new lease, redevelop etc.

What are the benefits of enfranchisement?

To make it possible to grant to residents who participate long leases, possibly with no ground rent
To allow the residents to take control of the management. Many Management Companies consult you only when major works are planned. Own the freehold and you can oversee those major works and all other expenditure on your property.
To make it more attractive when you want to sell a flat (the psychological benefit of having a flat with share of freehold)
The freeholder normally has rights to develop the property, for his own benefit. Owning the freehold gives you greater control over proposed modifications to the building
Lower Management charges. In central London, you could pay £225 plus per year per flat just for the property management service. As a Freeholder, you save this money if you manage the property yourselves, or have more control over the Property Managers who now work for you.

Do we need to form a company?

Yes. We recommend a company limited by guarantee which gets rid of the need to transfer shares every time a flat sells. Proposed legislation will stipulate the use what is a Right to Enfranchise company which has a specified structure and constitution.

How do we get ourselves organised?

Form a residents committee.
Appoint key people to drive the matter forward.
Canvass other residents.
Appoint professional representation
To work well the process should be run like a military campaign!

Do we need a binding commitment from participating tenants?

This is recommended. Get a participation agreement in place to bind the participators. Break down the commitment, for example, a preliminary commitment to contribute to the investigative costs. A decision in principle to proceed. A commitment to proceed with the formal acquisition process.

Can I get financial assistance with buying the freehold?

Buying the freehold increases your security of your flat; your mortgage company will more positively consider extending your loan to cover the freehold cost and any associated legal and valuation costs.

I am 1 of 2 flats/maisonettes, I would like to buy the Freehold is that possible?

You may both need to want to buy as 51% need to qualify for a freehold purchase application to be forced. If there are only two flats in a building, both flats must participate. If the other flat wants to participate but cannot afford to do so, you can still acquire the freehold; perhaps by a loan to the other Leaseholder. What matters is that they sign offers and are a beneficiary of the freehold when it is conveyanced. If the freeholder owns one of the flats you will never be able to compel the freeholder to sell a share. If the other flat isn't interested in participating you will not be able to compel the freeholder to sell.

My lease has 80 ½ years unexpired what can I do I am worried about marriage value?

The main reason to press on with enfranchisement sooner rather than later is that marriage value applies to all leases with less than 80 years unexpired. Get specialist advice, serve your notice to fix the valuation date whilst your lease has more than 80 years unexpired. Be absolutely sure your notice is not defective, it could cost you dearly!

Do we need another company or can we use our existing management company to buy the Freehold?

Yes, if every member of the management company participates in the freehold purchase. Else, no you will need a separate company for those participating in the freehold purchase application.

I want to add another storey to my top-storey flat. The freeholder opposes this. Will buying the freehold enable me to make modifications to my property?

Your ability to develop your leasehold property will depend on a number of permissions, (planning, building regulations and the landlord's consent).
Unless you can agree terms, the freeholder will usually be able to use the terms of your lease to prevent you from making substantial modifications to your property.
Buying the Freehold means you would have to convince your fellow flat owners rather than the Freeholder.

I live in a leasehold house. Can I buy my freehold or extend my lease?

Subject to qualification criteria, yes this can be possible.

Is there an alterative to buying the freehold which allows me to extend my lease so I don't put off potential buyers?

Yes. You may qualify and be able to claim a 90 year extension to your lease. If the lease when granted was for a term of more than 21 years, you will probably be able to claim a lease extension.
You will be required to pay for the lease extension and also the reasonable legal and valuation costs of your freeholder. Once you serve Notice claiming your right to a statutory lease extension on the freeholder, you can register this against your title and then sell your flat together with the right to claim the lease extension. If your lease has less than 5 years to run, then your freeholder can refuse to grant an extension on the grounds that he intends to demolish and redevelop the building. You cannot apply for a lease extension if you are trying to enfranchise at the same time.

I'm very unhappy about the cost and quality of the maintenance of my building. However, I don't want to buy the freehold. Is there anything I can do?

Yes, together with your fellow leaseholders, you have the legal right to compel your Freeholder to pass over the management of the building to you, without need to prove fault. Recent legislation has simplified many aspects of the process.
What you need to do is

Establish if the building is qualifies. It must contain at least two flats and at least two thirds of the flats must be let to qualifying tenants. Any commercially-used parts of the building must not exceed 25% of the total floor area. The building/flats must be self contained. Also, check that the leases were for more than 21 years when originally granted
Establish which leaseholders wish to be the original members and officers of the company
Set up a Right to Manage Company - the 2002 Act specifies in some detail how this should be set up and also prescribes the specific wording of the Articles and Memorandum which the company must hold. You cannot simply buy a typical off the shelf company.
Serve notice inviting participation on leaseholders. This form must follow a specific prescribed format.
Serve the freeholder with a Notice of Claim, and register it with the Land Registry.
Receive freeholder's Counter-Notice, either admitting that the RTM Company is entitled to acquire the rights to manage or alleging that the RTM Company is not so entitled and give reasons to support the allegation
If there are no objections then the RTM takes over the management on the date specified in the Notice of Claim (which must be at least three months after the Freeholder is required to submit their Counter-Notice)
If there are objections, the RTM company refers the matter to the LVT and takes over the management three months after the LVT's determination.

In terms of cost, you will be responsible for the freeholder's reasonable professional fees in responding to the transfer. The freeholder will not be able to recover any costs of an LVT hearing on entitlement of the RTM Company to take over the management, except where the Tribunal finds against the RTM Company.

What are the qualifying criteria?

The main criteria are that

The building must be a self contained block of flats (which includes a converted building as well as a purpose built one).
he building must have no more than 25% non residential use.
Two thirds of the flats must be let to qualifying tenants.
A qualifying tenant is one who holds the flat under a long lease, namely one which, is for a term of more than 21 years.
The qualifying tenants of flats comprising 50% of the flats in the building must participate.

Please note that it is no longer necessary for a qualifying tenant to have owned a flat for a minimum period or to have lived in it.

I rent my flat out, but I would still like to buy the freehold. Am I excluded from buying the freehold because I don't reside in the building?

No. Since 2002, the legal requirement that leaseholders seeking to buy the freehold had to be resident in the flat was abolished. Non-resident leaseholders can now participate in a collective enfranchisement.

We have not been able to make contact with our freeholder and no longer know where he lives. He has never collected ground rent. What do we do?

Don't worry. You can still buy your freehold. You need to apply to the County Court for a decision to have the terms under which you can buy the freehold referred to the Leasehold Valuation Tribunal for determination. The County Court has the power to dispense with the need to formally serve the freeholder with an Initial Notice.
The LVT will hear the case even if the freeholder remains absent and will determine fair terms for the purchase. Once the LVT determine terms, you can apply to the County Court for a vesting order transferring the freehold to you.

Our Freeholder is intending to sell the freehold of our block at auction. Can he do that?

Your Freeholder can sell the freehold at auction provided he has served correct notice on you of his intention to do so. This is because by Law, (Housing Act 1996) in most cases it is an offence for freeholders to dispose of freeholds without first offering it to leaseholders.
Freeholders must generally still serve a section 5a notice on the leaseholders giving them at least 2 months to respond, but instead of quoting a price they can sell the freehold at auction and offer the leaseholders the opportunity of taking the place of the highest bidder at the auction.

Do we have to bid at auction or not?

No you don't have to bid you can take the place of the highest bidder at the auction.

What type of Freeholder would buy our property at auction?

Freeholds sold at auctions may be bought by buyers paying 'hope value' of collecting ground rent, the valuable reversion (when the lease runs out), getting commission from insurance, future lease extension premiums, fees for managing or carrying out works.

We are trying to buy our freehold, before he negotiates the Freeholder is demanding a valuation fee and administration fee therefore negotiations are getting nowhere. My fellow leaseholders are becoming disillusioned. What should we do?

By law, the freeholder can require money up front towards his valuation fee, or he can refuse to discuss matters informally to force you to serve notice which then secures his costs.
Remember, usually, the value of your freehold increases as the lease decays so by delaying or putting you off the freeholder's interest may be getting more valuable. Watch out particularly if your leases will soon be below 80 years.

I have ongoing service-charge disputes with the Management Company. How might these affect my buying the freehold?

By law, any monies due to the freeholder, or their agents (typically the Management company), from any tenants in the premises need be paid before full title in the freehold can pass to the leaseholders.
Any service charge disputes need be divided into those that have been determined by the Leasehold Valuation Tribunal (LVT) and those which have not. Service charges that have been determined by the LVT need to be paid with the purchase price of the freehold. Service charges not yet determined by the LVT will give the freeholder a lien over the freehold when it is transferred to you. You will need to have these service charges determined by the LVT or otherwise settled to the agreement of both parties in order to remove the former freeholder's lien.

How long will it take?

You will probably need about 2 to 3 months to research and gauge commitment, get a valuation, report back to the other residents and generally organise yourselves.
As to the statutory procedure itself this is initiated by a notice served on the freeholder (and any intermediate landlord). From there the timescale could be one of a few months if the freeholder accepts the claim in principle.
If negotiations over the price are not going well, or if the freeholder disputes the claim, or it is not possible to agree the price and other terms without reference to the Leasehold Valuation Tribunal the timescale will be longer. Assuming the acquisition is successfully negotiated or awarded by the LVT you must allow a short period for the conveyancing of the freehold to the nominee company.
Essentially it all depends on the unity of the leaseholders and how reasonable and responsive is the freeholder. Should he be willing to settle on the terms offered by the leaseholders, or suggests a settlement within the leaseholders' range of acceptable prices, and if the leaseholders are happy to enter into the agreement and share the costs, then you could own the freehold in 2 months.
However, if the freeholder is so unresponsive, difficult to track down, unwilling to negotiate or be so unreasonable in their demands that the formal legal route has to be followed to compel the purchase, then it can take in the order of 18 months to buy the Freehold. Additionally, if there are problems organising the leaseholders, there are disputes about sharing the costs and disagreements as how to proceed, then the process can take over two years.

What are the timescales set in law?

A Generally time scales contained in current legislation are as follows

Leaseholders serve Initial Notice
The Freeholder has to serve Counter-Notice not less than two months after receipt of the Initial Notice.
Leaseholders and freeholder have a period of 2-6 months after receipt of Counter-Notice to negotiate amongst themselves.
If within this period you cannot agree terms, you must apply to the Leasehold Valuation Tribunal to determine the terms.
The central London LVT currently takes about 20 weeks to schedule hearings.
The LVT issues a determination within a target of 6 weeks after the hearing.
The determination of the LVT becomes final within 28 days of its issue unless either party seeks leave to appeal the determination at the Lands Tribunal.
After the determination of the LVT becomes final, the freeholder must provide a draft contract within 28 days.
Both parties have a period of two months from the LVT determination becoming final to enter into the contract.
Failure by the freeholder to enter into the contract on the terms specified by the LVT, entitles the leaseholders to apply to the court within two months requiring the freeholder to meet his obligations.

Do we need a formal valuation?

No, but the statutory valuation methology is complex.

You need to know how much you are likely to have to pay even if only for the purposes of negotiating with the freeholder.
The notice served on the freeholder must state the proposed price, if you quote an unrealistic price you could invalidate the notice.
It is highly likely that the freeholder will employ a specialist valuer and the tenants will almost certainly need one to negotiate on their behalf. Appoint a Surveyor who specialises in this type of valuation.

How much do we have to pay?

It depends on

the amount and the level of ground rents
whether there are ground rent reviews
how many years are unexpired on the lease
how many flats are participating
how many of the leases (if any) have less than 80 years unexpired
what the difference between the short lease value and extended lease value is (marriage value)
whether there are 'unsold' parts of the building that you will also have to buy off the landlord
what the right capitalisation rate (investment multiplier) is for the postcode/are you live in
other compensation to the freeholder for other interests, garages, development potential
the freeholder's "reasonable" legal and valuation costs but not his costs for proceedings at the Leasehold Valuation Tribunal.
costs of drafting a Participation Agreement
costs of serving an Initial Notice on the freeholder if he declines an informal negotiation.
payment to a management service to manage the process on your behalf.

My lease has 80 ½ years unexpired what can I do I am worried about marriage value?

How much more might it cost to buy the freehold if our leases when the leases drop below 80 years?

The simple answer is the cost of the marriage value. The difference between the short lease value and the value of the lease once you can grant yourself a share of freehold. When a lease is less than 80 years you must compensate the Freeholder on a 50:50 split for the marriage value. Marriage Value is only payable on flats of participating leaseholders.

Do we have to pay the freeholder's costs?

Yes. By law the residents' nominee company must pay the reasonable costs of the freeholder (and any intermediate landlord) of assessing whether the lessees have the right to enfranchise, dealing with the tenants notice (serving counter notice), also the landlord's valuation and conveyancing work. There is still a liability to pay the costs if the tenants withdraw from the process.

What are the other costs?

The main costs will be the professional fees, namely solicitors and surveyors/valuer as well as the landlord's costs, company formation costs. There may also be payments in respect of the conveyancing for example Stamp Duty Land Tax, Land Registry fees and incidental searches.
You should bear in mind that there are a number of variables for example whether or not is it necessary for the claim to be referred to the leasehold valuation Tribunal and whether the claim is dealt with fairly speedily by way of negotiation with the freeholder. Clearly there are economies of scale which can benefit large groups of participators. In our experience the overall cost per tenant usually works out to be reasonable when compared with the benefit obtained. Nevertheless before proceeding it is recommended that a costs benefit analysis be made once the initial investigative work has been undertaken.

Our freeholder wants to sell us the freehold. His Notice looks formal, but how can we be sure if the price stated is reasonable?

In most cases, it is a criminal offence for the freeholder to dispose of the freehold without first offering it to the leaseholders and doing so in writing.
The offer must give the leaseholders at least two months to respond. If an insufficient number of leaseholders accept the offer or if there is no response from the leaseholders, then after the two months expire the freeholder is then free for a period of 12 months to dispose of the freehold at no less than the offer price to the leaseholders.
Should the Freeholders deal fall through and he want to sell at a lower price, or after the 12-month period has expired he must start all over and serve a new Notice.
You will need specialist advice from a Valuer to find out if the price is reasonable.

What happens with maintaining the property after I buy the freehold?

It is a mistake to assume all building management problems disappear after a Freehold purchase. They become your problems.

You will need to insure the building.
You will find that arguments intensify about what maintenance should take place (a flat-owner in the basement who doesn't use the common areas in the main building may object to the costs of cleaning the common areas or to the costs of internal redecoration).
There are also administration issues. Is there to be a common bank account? Who makes payments and keeps records?
There are maintenance issues. Who engages the decorators, cleaners, etc?
There are credit control issues. What happens if one of the leaseholders refuses to pay their share of costs? What sort of atmosphere would exist if there was a need to take your neighbour to court to force them to pay for their contribution to the maintenance?
There are lease interpretation issues. Your existing leases should contain covenants which require the property to be maintained. Co-operation and flexibility are required to meet these obligations.
You should note that some leases have been designed so that the party providing the maintenance is a party to the lease. In these cases, even when you acquire the freehold, you may need to compulsorily acquire the management under the Right to Manage procedures

OK, well if we own the Freehold what is the process for extending the leases?

If you join with other leaseholders to buy the freehold, you keep your lease but buy a share in a company whose main asset is the freehold. Then when your lease ends a company in which you own a share gets the flat at the end of your lease, the right to redevelop etc.
Normally the freehold company will vote to allow all members to increase the length of their lease - typically to 999 years - and abolish ground rent. Physically extending the lease requires a deed of variation, to 'vary' the number of years until it expires.

What will happen once the freehold has been acquired?

If you bought the Freehold because your lease was shortening, you can increase the term of the lease (typically to 999 years) after purchase. You can also abolish ground rent and any other clauses in the lease you consider problematic. You might even consider drafting a new lease, for which you need only pay the relevant legal fees.

What about service charges after the freehold has been acquired?

If your main motivation was to reduce excessive service charges levied by the existing freeholder, it will be for the shareholders in the company you used to buy the freehold to determine future service charge levels or delegate this to a managing agent you appoint.

A management company looks after the communal gardens and general external maintenance. What will happen after we acquire the freehold?

If the management company has been appointed by your freeholder, you may be able to sack them an appoint one you choose.