Enfranchisement- The process of buying your freehold
Enfranchisement Flats The whole process, from start to finish, may involve fairly substantial costs, most flat owners will want to keep a tight check on this and often it is a good idea to make friendly contact with the landlord to ascertain if an approach to buying the freehold, would receive a favourable reception. By doing this, you may be able to gauge exactly what you’re letting yourself in for with regard to how the landlord will handle the sale process.
Often, you will find that the landlord is quite receptive to an offer to buy the freehold, especially if the current remuneration is disproportionate to the amount of work involved in running the block. Those landlords that are against disposing of a freehold asset, are usually the ones with the most amount to lose. Many landlords can make decent money from ground rents and are also able to earn commissions from insurance premiums, which they have the right to arrange. If you experience delays in the landlord answering your correspondence, you may find that the process will take a good deal of negotiating.
Managing the Project – to ensure that the process is dealt with as smoothly as possible, you will need to appoint a team to handle the paperwork and various contacts. In small blocks, this is quite straight forward as you can get everyone involved. In larger blocks, it’s probably better if a number of people are involved, with regular reports back to the other flat owners. You can decide amongst yourselves how to apportion the tasks.
Two very important considerations are; to make lists of what actually needs to be done and by whom. often with larger blocks, many people want to become in involved and not always at the same time, this can lead to confusion and delays. Secondly, if flat owners are not eligible to take part in the enfranchisement process or they don’t want to be involved in the actual process, you can guarantee, they will want to be kept informed of how matters are progressing. Regular reports with an update of what’s outstanding and timescales should help to keep everyone happy.
You may find that during the process, several of the flat owners begin to loose interest or want to pull out. It may be an idea at the start of the process to draw up an agreement for all the owners to sign, confirming their acceptance to take part. This document can been drawn up by the solicitor you choose to act on your behalf. At this stage, it’s a good idea to have a list of the all costs involved calculated on a per flat basis. It’s difficult to obtain a commitment from flat owners when the costs appear open ended. Most people will want know, the total amount they will have to obtain with a certain degree of accuracy on a best case/worse case scenario. If you have employed the services of a surveyor, you should be able to predict the cost of the sale, even if it proceeds to a tribunal.
Obtaining all the required Information – between you, you will need to check on the ownership of the freehold title, is the landlord actually the owner and permitted to sell you the freehold? As well as the landlord, leasehold interest must be established for all the individual flat owners. This must be accurate as the information is required to be submitted on the initial notice. This is important. the landlord may ask for evidence of ownership and if you are unable to supply it with the allotted time, then the ‘Initial Notice’ will be automatically withdrawn. The information relating to the landlord can be obtained from the Land Registry, he or she will also need to cooperate in the process and there are a number of statutory notices that can be served to help obtain the information in a reasonable amount of time. These statutory notices, impose certain time restrictions for each party to reply to each other.
Deciding to proceed – when you are in possession of all the necessary facts and are confident of the process and it’s various possible outcomes, you can start to put in to place a number of steps to enable the process to commence.
- A new limited company needs to be set up to act as nominee purchaser. ( if you decide a limited company is your favoured option)
- A questionnaire will need to be completed by flat owners with regard to length of occupancy etc
- A participation agreement will have to be obtained from each flat owner with the dates that funding will be required.
- You will have to verify that the qualifying conditions can be met.
- You will need to set up a bank account to hold the funds and to be used for the business of the block management.
- You will need to formally instruct solicitors to proceed.
Your solicitors will draw up the initial notice and this will be presented to the freeholder. This document must contain certain information:-
- statement outlining the grounds on which the tenants claim the right of enfranchisement under the 1993 Act.
- A plan of the freehold building showing the extent to be acquired by enfranchisement. The plan will have to indicate how the property is divided on a compartment basis and will also have to indicate any other parts of the building that the freeholder will have to grant rights over, to enable the acquisition of the freehold enfranchisement of the building.
- Details of any Intermediate leasehold interest that will have to be acquired and details of any flats which may be secure or on protected tenancies.
- A statement detailing the proposed purchase price as well as a statement detailing amounts for any intermediate interest if applicable.
- A list of all the qualifying tenants including their full names and addresses. Details of their respective legal interests will have to be included to substantiate them as qualifying tenants
- Details of the nominee purchaser
- A date specified by which, the freeholder must serve any counter notice, this must be at least two months ahead.
The qualifying tenants listed in the initial notice are bound by it and once served no further notice can be given whilst the first remains in force, It can of course be withdrawn, but then a period of 12 moths must elapse before a new notice can be given. The notice only ceases to be effective if withdrawn or of course, if a sale is concluded. The Act recognises however, that certain changes may have to be made. Individual flats are bought and sold on a regular basis and it is possible to substitute a new purchaser for the previous owner by notifying the nominee purchaser within 14 days of the change. Even if the seller had not joined the proposed acquisition, providing they were eligible, then the new owner may participate. In the event that a participation owner dies, then his or her executors have 56 days to decide whether to continue or withdraw from the sale, if no action is taken within this time then it is considered that the executors will be continuing in place of the deceased, With 28 days of being notified of a sale or a death, the nominee purchaser is obliged to tell the freeholder and give notice to any other intermediate interests.
The Initial Notice – once the initial notice has been served, then the landlord or any one with an intermediate interest will have the right to inspect the property to enable them to carry out there own valuation. Expect there own valuation to disagree with your own. They must give at least three days notice of their intended visit and it must be at a reasonable time. Once the initial notice has been served, the freeholder will not be able to dispose of his interest to anyone other than the flat owners until the process has been completed. If he has already entered in to a contract for sale with third party, then this contract is frozen
The landlord will have the right to request certain information from the nominee purchaser relating to the tenants qualification to participate, This request must be issued within 21 days of receipt of the initial notice. The nominee purchaser has 21 days to reply, not a particularly lengthy period of time and hence the need to make sure that all the necessary assurances and proofs are obtained in advance, If no reply is received within 21 days, then the notice is automatically withdrawn.
Subject to the time limits imposed by the Initial notice, the freeholder has the right to reply with a counter notice. This notice will acknowledge the initial notice and either confirm that the right to purchase is acknowledged or that the right is contested and stating the reasons why. For any item in the notice, which is not accepted, then the landlord must make a counter proposal. The landlord will also have to list the rights of others that will have to be satisfied for the acquisition of the freehold and what rights they will wish to retain if the property changes hands.
The landlord may disagree with your valuation and in this case, the matter is referred to a Leasehold Valuation Tribunal, which is mentioned in our article on valuing your lease. As with all matters pertaining to property acquisition, good quality legal advice should always be sought before any decisions are made.
Assetsure provide Blocks of Flats Insurance for UK conversions and purpose built blocks. Owner occupied and tenanted.