According to official UK Government figures, there are over 4 million residential leasehold properties in the UK.
Almost all of them are eligible for the legal right to acquire their Freehold under Collective Enfranchisement rules. Many apartment owners are becoming aware of the various benefits of owning their freehold rather than a lease. So, why do so many Collective Enfranchisement initiatives fail to get off the ground or collapse when they do?
Our lease extension experts can guide you through with efficiency.
Here are the top five mistakes we notice the most and how to avoid them.
Mistake #1: Failing to recognize the advantages of owning a freehold.
- “We already have long leases in place.”
- “We have managerial authority.”
- “Our flats will be worthless if we control the freehold.”
In various respects, freehold ownership differs from leasehold ownership, and each transaction is unique. Apart from acquiring a 999 (perpetual) lease and eliminating ever-increasing ground rent expenses, being master of your destiny has other direct and indirect advantages. When you are not restricted by a freeholder, you may manage small and significant improvements on your timetable, improve the building as you see fit, and save money on everything from contractors to insurance. The time you save by not engaging with and occasionally arguing with a Freeholder will be better spent on your own life. Leaseholders who own a portion of the freehold benefit from increased resale and rental prices. In a nutshell, leaseholders who have grouped together get along nicely. It’s what many people refer to as a “no-brainer.”
Mistake #2: Overestimation of the obstacles
- “We will never be able to recruit the needed 50%.”
- “It will be too expensive and take too long.”
All collective enfranchisement demands, large and small, face comparable early hurdles, but erroneous assumptions are by far the most serious. Instead of presuming that the 50% qualifying tenant criteria will not be met, recognize that they will be appreciative of the chance and actively recruit leaseholders with the objective of achieving as near to 100% as feasible. Rather than presuming that the expense would be too high or that it will take too long, go through a process of calculating both before determining whether or not to proceed at each level. Take the proper moves at the appropriate moment, and you’ll avoid problems you weren’t even aware of.
Mistake #3: Underestimating the expense or the amount of organization necessary
- “It’s similar to extending my lease; there’s not much to do.”
- “Our lawyer will organize everything.”
- “We have a cost estimate from our counsel, and we will stick to our budget.”
Oversimplification of the procedure is another important reason why many collective enfranchisement requests stall or fail. There are some parallels between extending your lease and acquiring a portion of freehold. Both are legal rights with legislative procedures. The parallels, however, end there since Collective Enfranchisement has other elements to examine. You are only as powerful as the weakest connection when dealing with several signatories. You are acquiring a full facility, including land and airspace, as well as potential development sites. There are several costs you should be aware of right away (such as the Freeholder’s fair professional fees, SDLT, and company creation, maintenance, and accounting) that no one informs you about. Solicitors will oversee the legal procedure but not the project. Organizing your group correctly will result in great success; neglecting to manage the project from the start will raise expenses and hazards.
Mistake #4: Avoiding a Participation Agreement
- “A Participation Agreement is great to have, but we can save time and money without one.”
A Participation Agreement is a legal instrument that establishes the framework for leaseholders to collaborate in order to achieve specific aims. Good quality PAs need skilled writing and signature by each individual or firm who is a leaseholder for each apartment. As a result, it is true that omitting this step can save some money and time. However, if and when any of your participants disagree, the expense of addressing and resolving the issues will usually far surpass the cost of the Participation Agreement. Preparing for arguments is the greatest way to avoid them. A Participation Agreement is a very useful instrument.
Mistake #5: Using the cheapest solicitor or surveyor
- “Expensive solicitors and surveyors will just demand a high hourly rate.”
When it comes to training experts, obtaining the perfect match for your facility is critical. A freehold purchase is a substantial investment, and with higher benefits come more dangers. On a per-hour basis, hiring a highly specialized and skilled solicitor and surveyor may be more expensive. However, if their knowledge and skill prevent even small hiccups, they will have shown their worth many times over. Going a little cheaper might frequently turn out to be far too pricey in the long run. Find the best fit.
For further questions related to lease extensions and property, contact one of our experienced chartered surveyors at Leasehold Valuations.