Lease Enfranchisement: What is it and what do I have to do?
If you and your fellow leaseholders are unhappy with your landlord’s management of your building, you may wish to consider whether or not to enfranchise the building (buy the freehold), to remove your landlords involvement.
In order therefore that you can understand your options in terms of an enfranchisement, we set out below a brief summary, of the steps that are required in relation to an enfranchisement.
The process starts by an informal contact to your landlord. That contact will enquire as to whether or not your landlord is willing to take the step of selling the freehold to you voluntarily, and therefore without the need to incur the cost set out under statute.
If your landlord agrees to progress with an informal lease enfranchisement, they will take the step of obtaining their own valuation, for which they will seek costs from you; and they will then make to you an offer in terms of the sale of the freehold.
As this type of enfranchisement process is informal, whilst you do not have to agree to the offer being advanced by the landlord, ultimately, the landlord does have the upper hand, and they are able to take the step of imposing in some circumstances, an unreasonable premium.
If matters cannot be agreed informally, then it is necessary for a formal process to be undertaken under the Leasehold Reform Housing & Urban Development Act 1993.
By virtue of this process you will start the process by obtaining your own valuation, and then serve an Initial Notice on your landlord. Once this has been served, your landlord has a period of 2 months during which to respond to the notice. Once the landlord has served a Counter Notice, there will invariably be some dispute in relation to premium.
The parties will therefore enter into discussions regarding premium, hopefully with a view to agreeing the premiums to be paid. Those negotiations are primarily undertaken by your instructed surveyor, and the surveyor instructed by the landlord.
The solicitors whilst this is being progressed, will begin discussions and negotiations in relation to the content of the transfer document.
If terms are agreed, then matters can proceed to the final stage of the transaction; but if they cannot then matters are referred to a First-Tier Tribunal. You must refer matters to a First Tier Tribunal within 6 months of receipt of the counter notice, as otherwise this deems your notice as drawn and you are required to restart the process. If terms are agreed however, this is considered to be compliant with the six-month time limit and new time limit begins. We will attend to this below.
If you are required to refer matters to the Tribunal, the Tribunal is able to consider the premium to be paid, the content of any transfer document, and the cost that you pay to the landlord. You are required under the Act to pay all costs associated with the enfranchisement process and incurred by the landlord, save for those costs incurred in relation to any negotiation, and any costs incurred in Tribunal proceedings. Most of the costs incurred by the freeholder therefore will be recoverable from you.
The process with the Tribunal takes approximately 3 to 5 months, and will require them sending out Directions in the first instance, which require the parties to make representations in relation to any draft transfer document, and to submit valuation evidence in relation to premium. A hearing will then be listed wherein the Tribunal will attend a site visit of the property to consider their own representations in relation to valuation; and they will then hear representations from the parties’ surveyors and lawyers, concerning both the premiums to be paid and the draft documentation. If costs are in dispute representations will also be made by the lawyers, in relation to costs. The Tribunal will then provide a determination, usually on paper, within 3 to 4 weeks of the hearing date.
Once terms have been agreed, or a Tribunal has made a determination, you then have a period of 2 months to enter into a contract for the completion of the lease enfranchisement.
If a contract is not entered into within 2 months, then a further period of 2 months within which to make an application to the Court to force the other party to enter into that contract. If you do not make an application within this time, then again your notice is considered to be withdrawn and you will need to restart the process.
The majority of the transactions do not however require you to enter into the contract, and therefore there is usually a requirement simply to complete within that 4 month timescale.
Upon completion you will pay not only the premium, that any remaining costs due to your own Solicitor, the landlord’s solicitors and surveyors fees, and any apportionments of ground rent that may be due. This applies regardless of whether or not the matter is concluded by way of a formal process or indeed an informal process.
Once completed, the purchase is registered at HM Land Registry, for the purpose of ensuring that your title reflects your ownership.
Once you have completed the enfranchisement of the property, you may wish to consider also extending your lease. As you are now the freeholder of the property, there is no need for you to pay a premium for the extension of your lease, and you can therefore grant yourself a 999-year lease at nil ground rent.
If you decide to take this step there will be additional charges payable, and it may be necessary for us to contact your mortgage company to obtain their consent in relation to the extension.
It can also take up to 9 months for this extension to be registered at the Land Registry, and this process can therefore elongate the enfranchisement process. It is however beneficial to take this step as there can be tax consequences if you attend to matters are a later date.
If you have any further queries in relation to the lease enfranchisement process, then please can you contact either Lorraine Lancaster or Lucy Grunwell on 01702 662963 / 020 35537115/ 01277 889193 / 01268 855679