BUYING THE FREEHOLD IN MY BUILDING

HOW DO I DO IT?

BUYING THE FREEHOLD IN YOUR BUILDING (‘COLLECTIVE ENFRANCHISEMENT”) UNDER THE LEASEHOLD REFORM HOUSING AND URBAN DEVELOPMENT ACT 1993 (AS AMENDED)

What Leaseholders can exercise the Right to Buy the Freehold in their Building?

It is available to those Leaseholders (known as “Qualifying Leaseholders”) who hold a Lease of their Flat which was granted for an original Term of more than 21 years

N.B. if a Leaseholder owns more than 2 Flats in the relevant Building then they will not be a Qualifying Leaseholder in respect of any of the Flats

Does my Building qualify for the Right to Buy the Freehold?

The Building must be a self-contained building or part of a Building (in the case of the latter it must be possible to separate the Building vertically from the adjoining Building, so that the Building has its own independent services, or such independent services could be provided without major disruption to the adjoining building)

There must be at least 2 Flats in the Building and at least two thirds of the Flats must be owned by Qualifying Leaseholders

At least half of the Flats in the Building must participate in buying the Freehold in their Building, all of which must be owned by Qualifying Leaseholders

There are the following restrictions

your Building can contain commercial premises, but they must not exceed 25% of the total internal floor area of the relevant Building (excluding the common parts) – the residential part of the Building must therefore comprise at least 75%

the right cannot be exercised if the Building is a conversion into 4 or fewer Flats and; it is not a purpose built block and; the same person has owned the freehold since before the conversion took place and they or an adult member of their family has lived there for the past 12 months

the right also cannot be exercised in respect of Flats which form part of Buildings within a cathedral precinct; national trust properties; properties belonging to the Crown (with certain possible exceptions) or where the freehold in the Building includes any operational railway (such as a bridge, tunnel or track))

Where do I start?

When exercising the Right to Buy the Freehold, the Leaseholders need to be aware that they will not only be purchasing the Building containing the Flats but, usually, also any associated property used in conjunction with the Flats such as garages, driveways gardens and similar ‘common parts’

You will all need to give very careful consideration to exercising the Right to Buy the Freehold and seek suitable professional advice, by appointing both a suitably qualified solicitor (to deal with the legal work) and a surveyor (to carry out a valuation and advise you upon the purchase price to be paid) to act on your behalf

Consideration also needs to be given (and suitable advice obtained) at an early stage as to the likely costs to be incurred in pursuing the Right to Buy the Freehold process – in addition to the Qualifying Leaseholder’s own costs, they will also be responsible for any reasonable costs incurred by the Freeholder, such as legal and surveyors’ fees (if the level of such fees are disputed then an application can be made to the First Tier Tribunal (Property Chamber) (“FTT”) by either party for a determination as to their reasonableness)

If agreement cannot be reached in relation to the sale of the Freehold in the Building to the Qualifying Leaseholders then it can be determined by the FTT, in which case each party will be responsible for their own costs in relation to that

Outline of the Procedure

Assuming that you qualify to exercise the Right to Buy the Freehold, there are a sufficient number of Qualifying Leaseholders who want to participate, and you have decided to go down this route, there now follows a general outline of the procedure which needs to be undertaken to exercise the Right to Buy the Freehold – suitable professional advice will need to be obtained before such procedure is undertaken

Participation Agreement

as the exercise of the Right to Purchase the Freehold procedure is dependent upon a minimum number of Qualifying Leaseholders participating and it will involve the payment of a purchase price and other fees and expenses being incurred (such as legal and surveyor’s fees), Qualifying Leaseholders should consider entering into what is called a ‘Participation Agreement’ whereby they agree with each other to participate (and continue participating) in the process and to bear their part of the purchase price and any costs and expenses incurred as and when needed – formal legal advice will be needed to put such a Participation Agreement in place

Formation of the Company (“the Purchase Company”) to be used as the purchase vehicle

it would not be possible for all of the Leaseholders to be named as purchasers of the Building, so it is usual for a private Limited Company to be formed – that will be a Company limited by guarantee (i.e. the Qualifying Tenants will be members of such Company, as opposed to holding shareholders in it) and it must have a Memorandum & Articles of Association (i.e. the rules which govern the running of such Company) suitable for the purpose of owning the Freehold in the Building (and complying with any statutory regulations in relation to the same) and having one of its stated objects as being the exercise of the right to collective enfranchisement in relation to the Building and the additional property

this Company would usually be set up by the solicitors acting on behalf of the Qualifying Leaseholders in relation to the purchase of the Freehold in the Building

The surveyor appointed by the Qualifying Leaseholders will, using their own expertise, value the Building and assess what they believe to be the premium (i.e. the purchase price) which should be paid to the Freeholder for the purchase of the Freehold in the Building. That premium will be assessed by using a statutory formula contained in the Act and which, very briefly, provides for the price payable to be the aggregate of:-

the value of the Freeholder’s interest in the Building and additional property – assessed on the basis of a sale on the open market, but subject to the Leases which affect the Freeholder’s title
the Freeholder’s share (50%) of the ‘marriage value’ (i.e. the rise in values in the Freehold and also in the Leaseholders’ respective interests in the Building) due to the nominated purchaser acquiring the Freehold
any amount of compensation payable to the Freeholder – this will arise where the Freeholder will suffer a loss in the value of any other property which the Freeholder owns, as a result of the nominated purchaser acquiring the Freehold in the Building and the additional property (or any other loss arising from it)

Formally exercising the Right to Buy the Freehold

It is done by the service upon the Freeholder of a Formal Notice (known as a Section 13 Notice). That Notice has to set out certain information, including:-

specify the Building and additional property proposed to be purchased and be accompanied by a plan showing such property
contain a statement as to the grounds upon which such Building and additional property fall under the Right to Buy
specify the proposed purchase price
state the full names of all of the Qualifying Leaseholders and the addresses of their Flats
state the full name or names of the person or persons appointed as the nominee purchaser (such as the Company specifically formed for the purpose) and an address in England and Wales where notices can be served upon them
specify the date by which the Freeholder must respond to such Section 13 Notice by serving a counter-notice (which must be a date falling not less than two months after the date of service of the Section 13 Notice

The Section 13 Notice is usually served by the solicitors acting for the Qualifying Leaseholders

Once the Freeholder has received such a Section 13 Notice they can within 21 days of the Section 13 Notice serve a notice upon the nominee purchaser requiring them to produce evidence of the Qualifying Leaseholders’ entitlement to participate – the nominee purchaser must comply with that notice with 21 days and, if it fails to so, then the initial Section 13 Notice exercising the Right to Purchase the Freehold is considered to be withdrawn

The Freeholder then has the period specified in the Section 13 Notice (being not less than 2 months) in which to respond to such Section 13 Notice, by serving a counter-notice in which they either:-

accept that the Qualifying Leaseholders have the right to buy the Freehold in the Building

if the right to buy is accepted then whether the terms proposed by the Qualifying Leaseholders are accepted or, alternatively not agree to such terms and propose the Freeholders own terms such as purchase price etc. – in which case the Qualifying Leaseholders and the Freeholder have a further 2 months in which to attempt to reach an agreement upon such terms, failing which either party has a period of 4 months in which they can apply to the First Tier Tribunal (Property Chamber) (“FTT”) to determine such terms (it is open to the parties to continue negotiating during this period)

dispute the right of the Qualifying Leaseholders to buy the Freehold in the Building – in which case the Qualifying Leaseholders will need to apply to the County Court seeking a declaration as to their entitlement to purchase the Freehold in the Building

If the Freeholder fails to serve a counter-notice then the Qualifying Leaseholders will need to make an application to the Court for an order determining the terms upon which they can purchase the Freehold

When the terms for the purchase of the Freehold in the Building have been agreed (or they have been determined by the FTT or the Court, as appropriate) the Qualifying Leaseholders and the Freeholder must then enter into a purchase contract within such of the following periods as is relevant:-

where all of the terms have been agreed between the Qualifying Leaseholders and the Freeholder, the period of 2 months beginning with the date upon which those terms were finally agreed or

where any of such terms were determined by the FTT or the Court, as appropriate, the period of 2 months beginning with the date when such determination becomes final or such other period as may have been set by the Tribunal or the Court

It should be noted that if the Qualifying Leaseholders at any time withdraw their claim to purchase the Freehold of the Building they will be responsible to pay the Freeholder’s costs up to that point