Enfranchisement

The information below relates to enfranchisement relating to flats only. See the Leasehold Reform Act 1967 for enfranchisement in respect of houses.

What does collective enfranchisement mean?

Tenants in a flat of a building with a long lease (which is usually a lease originally granted for more than 21 years), have the right to come together and purchase the freehold interest of their building provided certain criteria is met. 

In some circumstances, the current owner of the freehold interest can be required, or allowed, to have a leaseback of some of the property when the tenants acquire the freehold interest.

The Leasehold Reform Housing & Urban Development Act 1993 (“LRHUDA”) amended by the Housing Act 1996 and the Commonhold and Leasehold Reform Act 2002 governs this right. 

What criteria needs to be met in order to qualify?

Several provisions need to be met before a claim can be made to acquire the freehold interest. Such provisions need to be met on the day the claim is submitted. These are set out in LRHUDA as follows:

• The building must be a self-contained building or part of a building
• The building must contain two or more flats held by qualifying tenants (see section 5 of LRHUDA)
• The total number of flats held by the tenants must not be less than two thirds of the total amount of flats included in the building
• The building must not be excluded from the right (see sections 4, 10, 94-96 of LRHUDA)

If at least 50% of the flats in the building take part, the tenants are qualifying tenants, the property qualifies and the correct procedures are followed, the landlord is unable to oppose. However, see section 21 of the LRHUDA which deals with a landlord’s counternotice. 

Does the building pass the 25% non-residential rule?

If more than 25% of the internal floor area of the building, excluding any common parts, is not used or intended to be used for residential purposes then the building will not qualify. This could be shops, offices etc. Garages and parking spaces specifically used by flats in the building will be classed as residential.

Resident landlord exemption

There is no right of collective enfranchisement where:-

• the building is a conversion into four or fewer flats; and
• not a purpose-built block; and
• the same person has owned the freehold since before the conversion of the building into flats; and
• he or an adult member of his family has lived there for the past 12 months.

Some properties are completely excluded from the rights of lease extension and collective enfranchisement:

• buildings within a cathedral precinct;
• National Trust properties;
• The freehold includes any track of an operational railway, including a bridge or tunnel or retaining wall to a railway track;
• Crown properties*.* Although the Crown is not bound by the legislation, the Minister has made a statement to the House of Commons that the Crown will be prepared to comply with the principles of it.

How can tenants exercise the right?

Tenants can exercise the right to collective enfranchisement by serving an initial notice of claim in accordance with section 13 of LRHUDA. 

The initial notice must:

• Be provided to the owner of the superior title (chosen by the tenants where there are various freehold owners) with copies of the initial notice provided to the remainder of the freehold owners. Must also be provided to any other person who might be a ‘relevant landlord’.
• Be provided by a number of qualifying tenants of flats in the premises as at the date of the initial notice (being not less than one half of the total flats)
• Provided with a plan showing the premises to be acquired in addition to details of any other property the tenants intend on acquiring (which they are permitted to acquire) and any rights of way over property not being acquired 
• Include a statement of the grounds which it’s claimed that the specified premises are eligible for the right of collective enfranchisement on the date of the initial notice
• Include information regarding any leasehold interests proposing to be acquired 
• State the purchase price being proposed for the freehold and any leasehold interests
• Provide the full names of the qualifying tenants in the specified premises in addition to their addresses and details of their lease (including the date the lease was granted, length of the term and when the term commenced)
• Provide the name and address of any nominated purchaser
• Provide a date by which the owner of the superior title must provide its counter notice in response to the notice (which must be not less than 2 months after the date of the initial notice) 

The tenants must decide how they will acquire and hold the freehold. This is often via a company of which they will all be members. This will also be the nominee purchaser, who will be named in the initial notice to the landlord.

Once an initial notice is served the participating tenants will be liable for the landlord’s reasonable professional fees from the date of service of the initial notice, whether or not the application is successful. 

• If a tenant’s landlord is a charitable housing trust, and the property is provided as a part of the charity’s work, then the tenants will not qualify. A tenant may also not qualify if they own more than two flats in the building. This is either jointly with others or solely in their own name. Where this applies these flats will be discounted from the two-thirds;

The notice is also registerable at the Land Registry which can be beneficial to tenants as it can protect their position.

How is the purchase price determined?

There is a formula in Schedule 6 of the LRHUDA which deals with the method for calculation of the purchase price. The valuation date will be fixed as at the date of the initial notice.  

Absent Landlords 

If after reasonable efforts, the landlord cannot be found, this will not prevent the tenants from exercising a right of enfranchisement. 

If the landlord is a company that is in receivership, an initial notice should be served on the receiver. If the landlord is an individual who is bankrupt, an initial notice can be served on the trustee in bankruptcy.  

If the landlord is absent, an application can be made to the county court for a vesting order to sell the freehold. If the court is satisfied that the criteria is met, it will order a sale of the property. The court will usually refer the case to the Leasehold Valuation Tribunal to determine the premium.