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Collective Enfranchisement is a right for groups of tenants who own the long lease interest to their homes or flats to join forces and purchase the freehold of their building/estate from their landlord.
This process enables leaseholders to become the legal owners of their building in order to have more control over the services and repairs and manage the common areas without their landlord.
This process is very useful for tenants when their landlord is absent or is mismanaging the building. Owning the freehold may also alleviate some of the bills imposed on you as a leaseholder. The ground rent being the biggest change, as you no longer need to pay to use the land.
The right is created by statute, mainly the Leasehold Reform, Housing and Urban Development Act 1993. The Act sets out strict rules and requirements that any group of tenants must meet in order to be able to participate in the purchase scheme.
These rules include:
The tenants would firstly need to check their eligibility and get initial advice regarding the purchase price. The participating tenants would need to determine how they will be purchasing the freehold and will usually set up a specific company of which they are all shareholders.
Then a series of statutory notices will need to be served and the parties will seek to agree the terms of the transfer.
Any dispute can be referred to the Residential Property Tribunal.
Once the terms of the purchase are agreed, there are strict time limits that must be followed. Failure to follow these deadlines can mean that the claim is automatically withdrawn and tenants will temporality be barred from re starting the process.
The purchase price is determined in accordance with a formula set by the Act. However, it is difficult to determine the exact price without input from a specialist surveyor. Early advice should be sought to understand the likely costs of pursuing an enfranchisement claim.
Any dispute about the value can be referred to the Residential Property Tribunal.
The tenants will be responsible for landlord’s costs associated with the transfer.
If the tenants decide to withdraw from the process at any time before completion, costs will also be due to the landlord.
The Right to Manage (RTM) allows qualifying leaseholders to take over management of a building, without the landlord’s agreement and without having to purchase the freehold. This allows tenants to have more control over their building without the need to go through the process of collective enfranchisement.
This is less complex than purchasing the freehold, but there will still be a strict process to follow.
A freeholder can only refuse to sell the land if the qualifying requirements are not met. For example, if the number of qualifying tenants does not meet the required percentage.
However, if the tenants withdraw from the process, they will likely need to pay the landlord’s costs.
There has been significant reform of this area with the introduction of The Leasehold and Freehold Reform Act 2024. However, we do not expect the most important changes in the act to become live until at least 2025/2026. Those considering collective enfranchisement or Right to Manage should take advice and consider waiting to see if the new changes could positively impact them.
The changes include:
A collective enfranchisement is a very useful tool for leaseholders, as it provides them with a legal mechanism to purchase the freeholder of their building. Given the legal complexity and pitfalls of a collective enfranchisement claim, it is always advisable to seek out a solicitor that is able to smooth out the process and guide you through it.
To speak to one of our experts today, please contact us on 02920 829 100 or by using our Contact Us form for a free initial chat to see how we can help.
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