Collective Enfranchisement

Owning the freehold means that the participants can decide how to run and manage their own building. They can choose what works are done and when, and how much they cost.

The participants will be able to give themselves new, longer leases.

This should make their flats more valuable, especially if their current leases have less than 80 years left.

To make a valid collective enfranchisement claim, not all the tenants of flats in a building have to join in the purchase.

To qualify for collective enfranchisement, a building must satisfy certain conditions.

The legislation also requires a minimum proportion of qualifying tenants to participate in a collective enfranchisement claim.

We can advise you whether you are qualifying tenants and if your building will qualify for collective enfranchisement.

The participants initiate the claim by giving a formal notice to the landlord. We draft the notice and the participants approve it. It must have some mandatory information, otherwise it will be invalid.

The landlord has various rights after getting the participants' notice, including the right to inspect the building, the flats, and any extra property included in the claim, on at least ten days' notice.

The participants in the purchase have the freedom to choose. Many opt to establish a company and distribute shares to all the participants. This can offer some benefits, such as:

• The legal ownership of the property is limited to four people, but there is no restriction on the number of shareholders in a company.
• If a participant decides to sell their flat in the future, they can pass their share in the company to the buyer, rather than changing the freehold. This is more convenient and requires less documentation.

If a company is set up, the participants will need to name directors and a company secretary and allocate duties for submitting records to Companies House (such as company accounts). They will also need to settle on internal policies, such as how to reach decisions about the building later on.

The freehold price depends on a complex formula that takes into account various factors, such as the flats' value when the participants' notice was given, the remaining lease term and the ground rent for each lease. There is a range of possible prices because some of the factors are subjective.

The participants should get a specialist surveyor to value the freehold before starting the process, so that they can suggest a price in their notice. The surveyor should also give an estimate of the highest price, if the landlord wants to negotiate.

The landlord may not accept the suggested price and may counter with a higher amount. Then, negotiations will follow to agree on the price and the other terms of the purchase. We and the surveyor can help with these negotiations.

Besides the freehold price, there will be other costs for the participants to pay, such as:

• Our fees and the surveyor's fees, including any expenses (such as a fee for registering the purchase at the Land Registry).
• The reasonable fees of the landlord's lawyer and surveyor for dealing with the freehold claim, preparing a valuation and transferring the freehold. It is hard to predict these fees as they depend on the landlord's lawyers and how long the process takes.
• Any stamp duty land tax that might be due on the price. We can tell you how much it is once the price is settled.

It may last more than a year from when we send the participants' notice until it is done, depending on how much time it takes to agree with the landlord on the terms.

If you are a long leaseholder of a flat, you have some legal rights that can help you switch the management of your building. These include applying for a right to manage (RTM) claim. The requirements for an RTM claim are similar to those for collective enfranchisement and you don't have to show any fault in the current management. The RTM process is usually faster than collective enfranchisement, because there is no need to transfer any property rights. However, problems can occur in developments that have commercial units or flats that are not on long leases, as those units will not be managed by the new RTM company.

The government has announced plans to make it simpler and more affordable for flat tenants to buy the freehold together. However, many details are still unclear and there is no deadline for the changes. It might take a long time before they happen.

Before making a claim to buy the freehold together, you need to do the following:

• Check that your building meets the criteria for collective enfranchisement. This may require inspecting the building and any shared areas and finding out how many eligible tenants there are.
• Find out how many participants there are. This involves finding out how many eligible tenants there are in your building and getting in touch with them, to see who will join.
• Get an estimate of how much it will cost to buy the freehold, from an expert valuer.
• Agree how to split the purchase price and other costs among the participants.
• Ask us (or another law firm) to act for all the participants. It is important to choose a lawyer with experience in collective enfranchisement.