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What is Collective Enfranchisement | An Advanced Guide

What is Collective Enfranchisement?

Collective Enfranchisement is a process through which leaseholders in a building, meet the provided criteria, can join together and buy a freehold of that building. It is a right granted to leaseholders by the Leasehold Reform Housing & Urban Development Act 1993 and provided at least 50% of the flats in the building are participating and the building qualifies then the freeholder cannot object.

Upon completion of the process, instead of an individual, the group of the participating leaseholders will gain freehold of the entire building which is why the term ‘collective’ is used. However, this is a complicated and lengthy process so it is advisable to instruct a Collective Enfranchisement Solicitor to do it for you.

It is also advised to get Collective Enfranchisement Valuation done from a surveyor to get an idea of the best and the worst amount that can be offered in the Initial Notice.

It is possible to get this done from a Collective Enfranchisement Calculator but the formula used to calculate the Enfranchisement Costs is quite complex and it is best to have an expert handle it.

The best way to purchase a freehold by a group of participants is via a company set up for this purpose and all participating leaseholders will be members of this.

Why should you own a freehold?

Owning a freehold of your building individually or among a group of residents would mean you have more control over your own house and you will legally own the ground and structure of the flat which can allow you to waive off the ground rent. Also, any lease extensions would be agreed between the participants at no extra cost.

If you want to modify your house in any way or perform an extension work on your flat, a group of residents who own the freehold can look at this more approvingly than an external freeholder.

Additionally, you and your joint owners will gain the right to employ any property management company to take care of the maintenance and cleaning of communal areas, which would not have been possible in case of an external freeholder.

Who and what qualifies for a Collective Enfranchisement?

Before the process is carried out, the building and the participating tenants must qualify for the Collective Enfranchisement.

Qualifying criteria for the building:

  • The building must contain at least two flats
  • It must be a self-contained building or be a part of a building with independent services to that part
    At least two-thirds of the flats must be owned by qualifying tenants (whose leases have more than 21 years remaining)
  • Not more than 25% of the internal floor area is being used for non-residential purposes, for example, shops or offices. Garages and parking spaces will be classified as residential areas

Qualifying criteria for leaseholder:

  • The leaseholder must have a lease which is for a period longer than 21 years
  • The leaseholder must not own more than two flats in the building

Even if all the qualifying criteria are met the Collective Enfranchisement right cannot be exercised under certain circumstances such as:

  • Buildings within a cathedral precinct and National Trust properties are exempted from this process
  • The building is a conversion of four or fewer flats
  • If the freeholder owner has been the same person since before the conversion of the building into flats
  • The freeholder or an adult member of his family has lived there for the past 12 months

The Procedure for Collective Enfranchisement

Once you’ve checked that the building and the tenants are meeting the qualifying criteria the next step would be to form a working group and enter into a formal participation agreement which will set out the terms of the purchase and sharing of the Collective Enfranchisement Costs or premium between participating members.

Due to the complex legal procedure, it is recommended to join together and instruct a Collective Enfranchisement solicitor and surveyor to act for you. The surveyor will be able to perform a better valuation of the property and advise the amount to be offered in the Initial Notice.

The solicitor will usually advise you to set up a company for the purpose and all the leaseholders will then be members of this company. This will also be the Nominee purchaser who will be mentioned in the Initial Notice.

Once the surveyor has calculated the Collective Enfranchisement Cost the Initial Notice may be served, stating the name of the freeholders, the Nominee purchaser and the premium you’re willing to pay. The freeholder then has a two-month window to come back and serve a counter-notice saying if they accept the request or not and put forward their terms and conditions if any.

If the freeholder disputes the premium the parties have further two months to negotiate. If an agreement cannot be reached within this period then the matter can be taken to the Leasehold Valuation Tribunal after that.

If the tribunal rules are in favour of the enfranchisement then the parties will have to enter a formal contract and then proceed with the transactions within a specified time limit.

What is Collective Enfranchisement? An advanced guide

Collective Enfranchisement Costs

It is highly recommended to get a valuation of the property done by a Collective Enfranchisement Surveyor before proceeding with the legal formalities so the freeholders can have an idea of the premium.

Though an exact value of the settlement figure is not really possible to predict, the surveyor should still be able to provide a ‘best and worst’ figure from the freeholder’s perspective.

Also, note that the leaseholders will be responsible for their legal costs as well as the freeholder’s surveyor’s costs. If the matter gets referred to the Tribunal, each party will be responsible for the expenses incurred during the Tribunal proceedings.

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