What is the difference between freehold and leasehold?
When you purchase a lease, you are in reality paying for a long-term rental contract. Your landlord [technically, the freeholder] retains overall ownership – the freehold – and at the end of the lease, the leased property returns entirely to the landlord. Whilst the lease is running, the landlord has certain obligations including an obligation to maintain the property – but the tenant usually has to pay ground rent and service charges. And that’s why collective enfranchisement is so powerful. It allows leaseholders to join together and take control and ownership of their own block.
But it’s a complex area of law and few solicitors deal with it – that’s why it’s really important to make sure you have experienced specialist collective enfranchisement solicitors on your side from the outset.
Looking for Specialist Legal Advice on Enfranchisement, Lease Extension or the Right To Manage? Call our expert Collective Enfranchisement Solicitors on FREEPHONE 0800 1404544 for FREE Initial Phone Advice – with no strings attached.
Is a 999 year lease as good as owning the freehold?
The main disadvantage of a 999-year lease is that, while it offers a long-term security of tenure, it still limits the homeowner’s ownership rights compared to a freehold property. In particular:
- Service charges: The leaseholder may be responsible for paying service charges to the freeholder for the maintenance and upkeep of communal areas.
- Limited control: As a leaseholder, you don’t have complete control over the property and may need to seek the freeholder’s approval for certain changes or renovations.
Why should we take over management of our block of flats?
Many flat owners are frustrated by having to deal with a management company. Sadly a significant number of management companies provide poor quality work and maintenance – but still know how to charge. Poor maintenance is not only an eyesore but can affect the value of your flat – putting off prospective purchasers. Many tenants have successfully taken on management of their block of flats themselves – or have at least taken control by appointing management agents of their own choice. Savings can be quite significant.
Our Solicitors can help you set up a Right to Manage Company to maintain your building – or can help you apply to the First Tier Property Tribunal for the court to appoint an independent block manager of your choice.
Click here to read more about setting up a Right to Manage Company
Click here to find out more about how a Court Appointed Manager could help you
Why exercise your right to manage? Click here to find out
Should I extend my lease – or leave things as they are?
While you may prefer avoiding the initial expense and time taken making an application for a lease extension, putting things off only makes it worse. The shorter a lease gets, the lower its value becomes and the more expensive it can be for the lease to be extended or to buy the freehold jointly.
I own both leases in a house divided into 2 flats– can I buy my freehold?
Yes, ownership of both leasehold flats in a single block, gives you have the right to enfranchise in the normal way.
If I join in buying the freehold can I sell my interest?
Yes.the most common arrangement is for those buying the freehold to set up a separate company to hold the freehold, and for each leaseholder to own shares in it. The Company is set up so that when 1 of the leasehold flats is sold, their shares in the freehold company transfer automatically to the new purchaser. This avoids the hopelessly unsatisfactory situation where vendors keeps a share of the freehold after sale of the leasehold flat, and the new owner of the leasehold flat doesn’t end up with a share of freehold
Do I really need a specialist Collective Enfranchisement Solicitor?
The process of buying your freehold is a complex one. This is especially true if the block involved is a big one and if there are other issues involved gardens, outbuildings and garages (especially if they are in an undercroft).
In the same way that very few people ever try their own conveyancing, collective enfranchisement is rarely completed without a solicitor. But unlike conveyancing, which is bread-and-butter for thousands of conveyancing solicitors nationwide, very few property lawyers deal with freehold purchase on a regular basis – if at all. Our specialist team of 5, possibly the largest specialist team of its type in the country, and nothing but lease extension, collective enfranchisement and right to manage applications.
Having our specialist collective enfranchisement lawyers on board from day one is often an important factor in avoiding potentially expensive mistakes, keeping disputes under control and providing reassurance to all of those who committed to the project from the outset.
Collective Enfranchisement – Do I need a professional valuation to buy the freehold?
Not necessarily – some landlords will agree a reasonable price for you to buy the freehold without the necessity of a formal valuation. However if you cannot reach agreement with your landlord, then a professional lease enfranchisement valuation by a surveyor will usually be necessary – both to increase your negotiating power with the landlord and as evidence in any application to the First Tier Tribunal (Property Chamber) – previously known as the Leasehold Valuation Tribunal or LVT.
If you do decide to buy the freehold and plan asking a surveyor to prepare a valuation, you are going to need a specialist in collective enfranchisement valuation. We regularly deal with specialist values and run an informal panel of the surveyors we know we trust. So we are happy to provide you with the name of an experienced enfranchisement surveyor local to you as part of our one-stop shop service.
Click here to read more about the Enfranchisement Valuation
What is a Collective Enfranchisement Participation Agreement?
A participation agreement is a legal binding document that commits all those who sign it to participate in the freehold purchase. It’s not always necessary in very small blocks – but the larger the block, the more important the participation agreement becomes. That’s because one of the main causes of delay may well be your fellow leaseholders. Often the hardest part of enfranchisement is actually keeping everyone committed and on board throughout the process.
We strongly recommend the use of participation agreement in all but the very smallest block. Our solicitors can help tailor a participation agreement to your particular block and your circumstances.
Click here to read more about the Participation Agreement
What happens if we can’t agree on premium for the freehold purchase?
Fortunately, this is relatively unusual, though we do come across it from time to time. And one reason why it doesn’t happen more often is that it’s normally unusual for either leaseholder or freeholder to claim their costs if the matter goes to the First-Tier Property Tribunal. And that can be expensive – and that expense is a good incentive for both sides to come to some form of reasonable compromise that they can both live with.
However, if the freeholder responds to the first Enfranchisement Notice and starts negotiations over a price, but that discussions break down in stalemate, the matter can be referred to the First-Tier Tribunal Property Chamber (formerly known as the Leasehold Valuation Tribunal or LVT). This referral can only been made in a four month window which starts two months after the Counter Notice is issued and ends six months after it was issued. Outside of this four month window, you cannot apply to the Tribunal and the freehold purchase might fail.
What happens if we can’t track down our freeholder?
That is surprisingly more common than you would think but there is a solution.
Your lawyer will collect evidence to show what efforts have been made to trace your freeholder – that will normally involve also appointing an enquiry agent to try to track down your Freeholder in the first instance. That’s because the Court will expect and ask us to prove that this has indeed been done ;
Your solicitor will then apply to the County Court for what is known as a Vesting Order. And provided that the court is satisfied that your Freeholder cannot be reasonably found, they will grant what is known as a Vesting Order, which allows you to continue with the freehold purchase despite the absence of the freeholder. The premium monies are still paid – but instead of going to the freeholder directly, they are paid into Court and held by until the freeholder finally appears;
NB The Court will usually refer the case to the tribunal to set the level of the premium
Click here to read more about lease extensions or buying your freehold and the vesting order
What happens if our freeholder doesn’t respond to the enfranchisement notice?
When the Enfranchisement Notice is served at the start of the process, the freeholder has two months to respond with a counter offer. If they don’t respond, the initial offer is deemed accepted. Leaseholders can then press ahead with the purchase of their block of flats’ freehold at the initial offer price – either by applying for a Vesting Order – as above, or often by simply threatening the freeholder with the possibility of an application for a Vesting Order.
That’s why it’s also so important for freeholders to use experienced collective enfranchisement solicitors – to make sure they are aware of,and don’t miss, the deadlines because if they don’t stick to them, they could lose out financially.
What happens if I don’t want to buy the freehold?
If you don’t join in with the other tenants to buy the freehold or exercising the right to manage, then your position remains roughly the same – the only difference is that you will when you freeholder. So in future you are going to need to pay any ground rent and service charge to those tenants who did buy the freehold as your new landlords – and they will be responsible for managing the property.
What does share of freehold mean when buying a flat?
Share of Freehold means that the buyer of a flat will own a share in the ownership of the block, including the land and common parts ((including corridors, lifts gardens and car parks), along with the other flat owners.
This can provide what is often significantly more control over the management and maintenance of the building – as well as potentially lower costs, compared to where the buyer only has a leasehold interest in the property.
However there are significant responsibilities associated with owning a share of freehold, as with the ownership of any property. So do make sure you fully understand what you’re taking on when buying flat with a share of freehold.
What happens if I don’t take part in the right to manage my block of flats?
Again your position will remain roughly the same. You will continue paying a management charge – but in future it will be to whoever has now exercised the right to manage the block of flats who will be responsible for management of the block .
Collective Enfranchisement – what is a Nominee Purchaser?
Part of the process of buying your freehold involves deciding on the person or body who will actually own the freehold. The name of the nominee purchaser needs, for example, to be included in the initial enfranchisement notice.
In most cases the nominee purchaser will be a company you and your fellow leaseholders set up specifically to buy the freehold of your block – and in which you all hold shares.
Yes – click here to read more about your collective enfranchisement company
Does stamp duty apply to collective enfranchisement?
Yes, stamp duty (or SDLT As it is often known) applies to freeehold purchase in the same way as buying any other property
What legal expenses does the freeholder have in Collective Enfranchisement?
When going through the process of collective enfranchisement, you will need to pay the reasonable legal and valuation costs of your freeholder. The costs of your freeholders’ own solicitors are likely to incur the following:
(a) confirming that the leaseholders are indeed entitled to buy the freehold
(b) checking that those leaseholders provide all the correct and accurate relevant paperwork, including the initial notice, and that they comply with both the procedure and timetable or freehold purchase;
Click here to read more about the initial Enfranchisement Notice
(c) providing information required by the Nominee Purchaser;
(d) valuation of the premises; and
(e) conveyance of the freehold to the Nominee Purchaser
Provided that these costs are reasonable, the leaseholders will have to pay them. However, if there is a dispute over whether or not these costs are reasonable, then the issue can be referred to the First-Tier Property Tribunal for a decision.
Click here to find out more about the costs of enfranchisement
Do We Need A Managing Agent After Buying our Freehold?
If your block of flats has recently gone through the process of collective enfranchisement, then you have the choice over who manages your block.
You can of course choose to manage the block yourself, but this requires a lot of time and know-how as well as requiring experience and certain skills. And that’s especially the case if your block is a large one.
If you do decide to manage your block yourself, then you will have to be patient when dealing with calls, letters and personal visits from all of the leaseholders. Some of the requirements in place can seem cumbersome and expensive, but they are there to protect you, the people living in the building and any visitors or contractors. The regulations are also there to help you protect your investment.
The managing agent is the neutral third party between leaseholder and freeholders. An impartial managing agent has a crucial role to play when there are tensions or problems to solve between you as the freeholder and one or more of the leaseholders.
Getting a good managing agent who offers competitive service charges is essential. Using a good agent will add value to your investment over time, as they prove their effective management of the property.
How important is proper block management when I come to sell my flat?
When you come to sell your property, a solicitor is going to start asking you several questions. They will ask questions to work out whether the block has been properly managed, and to ensure there are no major repairs outstanding.
Any experienced managing agent will be able to help with the answers to these questions as they will have gone through this process many times before.
What legal responsibilities do managing agents take on?
It is also important to have processes in place to make sure that all legal requirements are complied with. Either you, or a managing agent, will have to make sure this happens.
Some of the most important requirements are:
• Carrying out electrical testing in common areas on a regular basis
• Arranging comprehensive building insurance which also states the reinstatement value
• Carrying out health and safety risk assessments in communal areas
• Organising safety and maintenance checks of any lifts in the building
• Assessing the fire risk of the building
• Inspecting all fire alarm systems or other fire safety equipment
• Carrying out an asbestos survey and being aware of any implications when employing contractors
• Keeping up to date with any changes to regulations and ensuring new legislation is complied with
It is human nature to want to keep costs as low as you can when running any sort of property or business, but these legal requirements can’t just be ignored – they won’t go away. If you aren’t up to date with your legal obligations, this could well mean that the solicitor acting for someone who wants to buy your flat will advise them not to go ahead.
In addition, you may also be breaking some of the conditions of your lease (unless you have bought the freehold of the flat) and this can cause huge tensions between the manager and the leaseholders. It can even lead to legal enforcement expensive action against you.
Can i buy the freehold of a leasehold house?
Yes, that’s perfectly possible.The right to purchase the freehold of a property is granted by the Leasehold Reform, Housing and Urban Development Act 1993 in England and Wales, and similar legislation in Scotland and Northern Ireland.
Click here to read more about buying the freehold of your leasehold house
Lease extension – is it available during the enfranchisement process?
It is worth noting, too, that leaseholders who choose not to participate in the collective enfranchisement project will be unable to extend their lease while the freehold purchase is going through. This can take a year or more, and during this time lease extensions cannot happen. This window lasts from the moment the Enfranchisement Notice is served until the end of the freehold purchase and the transfer of ownership to the new enfranchisement company.
How can we avoid disputes over Service Charges during Collective Enfranchisement?
Surprisingly this is often 1 of the most contentious issues that occurs during the process. But there are 2 relatively simple steps that you can take to minimise the problem:
- Careful Accounting – make sure that whoever manages the cash flow with real care and keeps everyone in the loop with regard to payments that become due. This is critical as part of the process means that the leaseholders must pay the freeholder any outstanding service charges – that’s because in buying the freehold, they are buying all the legal rights that accompany the building. And that includes both assets and liabilities.
- Get a Written Agreement from day one – the other simple stage to avoid this kind of disputes is to make sure you get a clear agreement in writing from the outset that
1. the Residents’ Association won’t get involved in any disputes over service charges during the collective enfranchisement process and
2. each leaseholder involved is responsible for their own service charges.
I’m thinking of acquiring the freehold of a 2 flat block of flats with the other flat owner. We are ground floor and they are 1st floor. Is there a way to structure the freehold so neither party can stop the other making structural changes to their own flat?
If you own the freehold between you 50/50 then decisions by “the freeholder” will need to be agreed between you both. This means any consent or deed of variation will need signing off by you both.
You could enter into a participation agreement during the course of your freehold purchase agreeing to vary your leases following completion to remove the need for consent to works/alterations. (This will only be possible if all leases in the building are amended in the same way).
However you should bear in mind that this will also mean you can’t object to any works your neighbour has carried out either, so this has its own risks.
In general terms, if you own a share of the freehold, you probably won’t be able to make changes to your flat without consent or some or all of the other freeholders. However that does depend on the nature of the change, what’s in your particular lease and whether you own the block individually or as part of a freehold purchase company.
But it is quite likely that if you do want to make major alterations to your flat, you will need to obtain permission from the other freeholders – in the form of what is known as a “a license to alter”.
Click here to read more about how our licence to alter solicitors can help you with these kind of alterations
I’m buying a flat and understand there is the option to purchase a share of the freehold as 2 other flats in the block wish to proceed with this. Do I have to wait 2 years before I could do this if I bought the flat? Or could I get the seller to do what I know is possible when extending the lease i.e. for the vendor to join in the freehold purchase claim and then assign to me the right to continue with that claim on completion?
If the current flat owners plan to acquire the Freehold (either by Enfranchisement or Right of First Refusal), there is currently no requirement for you to have owned the property for two years to be a part of the acquisition. But the freehold purchase would be a collective Claim alongside your co-leaseholders, your vendor wouldn’t be able to assign you the benefit of the Notice of Claim (as this would come from a collective group of owners rather than just one owner).
However there is no prohibition on yourself joining the Claim at a later date once you are the owner (provided the other leaseholders agree to you doing so).
Looking for specialist Collective Enfranchisement Solicitors? Call us today
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