Collective Enfranchisement FAQs

The Leasehold Reform, Housing & Urban Development Act 1993 conferred on tenants of blocks of flats the right collectively to acquire the freehold of their building. The Commonhold and Leasehold Reform Act 2002 simplified the qualifying criteria and introduced various other measures which, on the whole, improved the position of leaseholders. Below are some answers to the most frequently asked questions.

Please note that this is a complex area of law and there are various exclusions and special provisions which apply in certain cases. These answers are only for general guidance and you should only act or refrain from acting after taking specialist advice on your particular situation.

Q. Why should we enfranchise?
A. There are a number of reasons. An important one is to enable the residents who participate to grant themselves long leases for nil price or for a nominal price with either a reduction or removal of the ground rent. In some cases it may also enable control of the management to be taken over by the tenants’ nominee company. A further perceived psychological benefit arises from being part of a tenant owned building and is a good selling point with buyers.

Q. What are the Qualifying Criteria?
A. The main criteria are that:-

• The building must be a self contained block of flats (which includes a converted building as well as a purpose built one);
• The building must have no more than 25% non-residential use;
• Two-thirds of the flats must be let to qualifying tenants;
• A qualifying tenant is one who holds the flat under a long lease, namely one which is for a term of more than 21 years;
• The qualifying tenants of flats comprising 50% of the flats in the building must participate.

It is no longer necessary for a qualifying tenant to have owned a flat for a minimum period or even to have lived in it.

Q. Do we need a formal valuation?
A. Not strictly speaking, but it would be highly unwise not to have one except in very simple cases. The valuation principles are complex. You need to know how much you are likely to have to pay, even if only for the purpose of negotiating with the freeholder. The Notice served on the freeholder must state the proposed price. If it is unrealistic it could invalidate the Notice. It is highly likely that the freeholder will instruct a specialist valuer, so the tenants will almost certainly need one to negotiate on their behalf.

Q. How much do we have to pay?
A. Various factors are taken into account including the amount and level of ground rent and frequency of review, the length of the unexpired terms of the leases and in particular, it is important to note that when any of the flats of participating tenants have leases with less than 80 years left to run it will be necessary to pay a marriage value. This is a main reason to press on with enfranchisement sooner rather than later.

Q. Do we have to pay the freeholder’s costs?
A. Yes. Under the legislation the residents’ nominee company has to pay the reasonable costs of the freeholder (and any intermediate landlord) of assessing the right of the tenants to enfranchise, dealing with the tenants’ notice and statutory procedure and handling the valuation and conveyancing work. Costs will normally comprise solicitors’ and surveyors’ fees. There is still a liability to pay the costs even if the tenants withdraw from the process.

Q. Do we need to form a company?
A. Yes. Normally this would be a company limited by guarantee and very shortly legislation will come into force which will require the participators to use an RTE company (Right to Enfranchise) which has a specified structure and constitution.

Q. How do we get ourselves organised?
A. The normal process is for a residents committee to be formed if this has not been done already, and for one or two key people to drive the matter forward. The opinions of other residents should be canvassed and it would be a good idea to invite a solicitor to attend a meeting of the Committee to answer questions, to explain what is involved and to advise on the pros and cons.

Q. Do we need a binding commitment from participating tenants?
A. We usually recommend this. We have standard forms of Participation Agreements which are intended to bind the participators to themselves and to the process.

Q. What are the other costs?
A. The main costs will be professional fees (solicitors/valuers) as well as landlords’ costs and company formation costs. There may also be payments in respect of the conveyancing, for example, Stamp Duty Land Tax, Land Registry fees and incidental searches. The costs will obviously be higher if the claim has to be referred to the LVT. There are economies of scale which can benefit large groups of participating tenants. The overall cost per tenant usually works out to be reasonable when compared with the benefit obtained. Nevertheless, before proceeding, it is recommended that a costs benefit analysis be made once the initial investigative work has been undertaken.

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