Collective enfranchisement is the term given to Leaseholders acquiring the Freehold of the property they live in. For the purposes of this article we will be referring to the Leasehold Reform Housing and Urban Development Act 1993 (“the Act”) as amended and the collective enfranchisement of flats. There is other legislation such as the Leasehold Reform Act 1967 which mainly relates to houses.
For many people owning a share of the freehold of the block of flats they occupy is seen as being vital as people often do not like the idea of simply being a tenant. In practice there are many different considerations which need to be weighed up before any application is made.
Firstly the Leaseholders need to act together (at least in part) since in simple terms 50% of the long leaseholders have to all come together to be able to purchase the freehold and if the building has any commercial parts these must not exceed 25% of the building. Assuming that these basic conditions are met the Leaseholders can then at least in principle consider whether they wish to pursue this route. Often there will be a vocal group who wish to “get on ” with the application. At this stage it is usual that people will then look to appoint a surveyor experienced in these matters to provide some guidance on the price payable. The methodology is set out in the Act and has been subject to numerous decisions of which the most famous is probably the decision in the case known simply as Sportelli. It is vital that a proper valuation is undertaken at an early stage to give all of the potential participants some idea as to what price may be paid.
Assuming that the numbers then match the Leaseholders pockets a detailed consideration should be given as to the right to qualify. Often a valuer experienced in this field will already have flagged if he foresees any particular issues. At this point it would always be advisable to instruct someone experienced in this field as the law, despite various amendments being made under the Commonhold and Leasehold Reform Act 2002, remains hugely technical with various pitfalls for the unwary. The adviser can then draw up the appropriate documentation and advise whether the Leaseholders will hold the freehold subject to any trust or company structure. It is worth pausing at this point to highlight that it is always open to Leaseholders to enter into informal negotiations with the Freeholder.
A Notice will then be served upon the Freeholder specifying a date by which they must reply. If there is no response then an application can be made to the County Court but usually (assuming a valid Notice has been served) the Freeholder will respond agreeing the right but disputing the price. There can however still be many technical reasons why a Notice may not be accepted by a Landlord and the Court of Appeal and the Supreme Court continue to hear a large number of appeals on very technical aspects although the bulk of these do relate to high value properties in what is known as Prime Central London however the outcomes tend to be binding on all.
The Act then allows for a period of negotiation after which if no agreement is reached an application can be made to the Leasehold Valuation Tribunal for a determination of the terms of the purchase. After this determination or agreement there will then be a transfer of the freehold and the Leaseholders will have acquired the freehold.
It is at this point that the hard work starts. Often Leaseholders will be advised to grant to themselves extended leases (typically 999 year terms) and possibly review any other perceived or actual failings in the lease. Certainly this should be looked at at this stage as there can be various issues if the Leaseholders only look to do this some way down the line, not least certain tax consequences which can arise.
It is important that all parties to the Collective Enfranchisement understand that there will still be a Leaseholder and Freeholder and whilst not impossible to own a freehold flat this is highly undesirable for reasons outside the scope of this article. The previous leasehold structure will then remain. For this reason before going down the route the Leaseholders must consider what Collective Enfranchisement will mean in practice.
The Freeholder will still be required to comply with both the terms of any leases (whether participants in the acquisition or not) and also the various statutory rules particularly governing recovery of service charges. The LVT in various recent decisions has made clear it has no jurisdiction to deal more leniently with Resident Owned freeholds than those owned by commercial investors. Given how complicated some of these rules are Leaseholders will always be well advised to consider appointing external managing agents to make sure these obligations are complied with. Owning the freehold brings both rights and obligations and this should not be forgotten. In particular awkward situations can arise where you have non paying tenants as the Freeholder and the Leaseholders who comprise the same will need to pursue action against these people.
As a result careful consideration needs to be given not just as to the acquisition but what this means for the future. It is also worth noting that simply because a building has undergone Collective Enfranchisement on one occasion does not mean this will not happen again and the writer has seen instances where one group have enfranchised but there has been a parting of the ways with some members of the freehold and so a second collective enfranchisement has taken place!
For some Leaseholders the costs of Collectively Enfranchisement mean that this is more economic than bulk lease extension applications but Leaseholders should proceed with their eyes fully open as to what is involved once you have been successful. Advice at an early stage of the process is vital so all are aware of the full implications of going down the route but if you decide this is the route for you it really can be a satisfying journey to have greater control of your destiny for what for many is their largest single asset
Filed under: England & Wales, FLW Article, comment, costs, legislation, long lease, procedure
30 September, 2011 • 16:57 0
Equality Act: what does this mean for Agents and Landlords?
2010 saw the enactment of the Equality Act which provided that Landlords must consider making reasonable adjustments for people with a disability looking to rent their property.
The purpose of the duty included within the Act was to ensure that disabled people do not face barriers to occupation and enjoyment of rental property. The duty applies to the tenant but also to others entitled to occupy such as spouses and children. In so far as this article we are referring to the actual premises themselves and to private rented accommodation. A failure to comply with this duty will of itself amount to a form of discrimination and it is believed that the duty will apply also to agents acting on behalf of landlords. Currently as a new Act there is little case law and no specific code of practice and consideration needs therefore to be given to previous codes, cases and provisions under the Disability Discrimination Act 1995.
Generally in respect of premises the duty only applies if there has been a specific request by a person. It is a question of looking at the circumstances and seeing if it is reasonable to assume that a request has been made. This could be as simple as a prospective tenant indicating to an agent that they find it difficult to read the print on a tenancy agreement. This is likely to be sufficient to trigger the duty to look at how you can make the tenancy more accessible to that person and the agent would then be required to take reasonable steps. What is reasonable is objective and will depend on the specific circumstances.
The duty to make adjustments has 2 requirements which apply currently. There will in due course be a third requirement in respect of physical features to common parts when further parts of the Act are brought into force.
Firstly where something puts a disabled person at a disadvantage compared with a non-disabled person reasonable steps must be taken to avoid this. Secondly to provide an auxiliary aid if this prevents the disabled person being at a substantial disadvantage. It is believed in considering this you must have regard to all policies, procedures, rules and requirements and it includes any terms of the letting. The threshold is lower than previously being “substantial disadvantage” and this is defined as being “more than minor or trivial”.
What this means in practice is a landlord must consider any request made. This is at any stage of the process and therefore may apply in the pre tenancy stage and also during the continuance of the tenancy. An example is given of a disabled tenant with mobility problems who asks the landlord to install a walk in shower and grab rail. If the landlord refused they must be able to give clear reasons as to why and to show this would not be unreasonable. The landlord may be able to impose conditions such as the color should match the existing suite or that the tenant must ensure removal at the end of the tenancy. Ultimately it is for the landlord to show the conditions are reasonable and interestingly there does not seem to be a requirement necessarily for the landlord to pay the cost although if an improvement is being made to the property in some way it may be reasonable for the landlord to contribute to the cost. Again it is a question of reviewing all the circumstances to determine what is reasonable.
Currently there is little case law to rely upon even under the 1995 Act. It is hoped that a code of practice will be issued to clarify what parliament contends but for the time being landlords and agents must take care. Generally if in doubt it is probably best to consider any request as potentially triggering these provisions and if any consent is not granted to have noted the reasons why. Both agents and landlords need to be able to step back from the decision they have made and look at the reasons and be satisfied that any reasonable person would support that decision. Currently the bulk of decisions under the 1995 Act have tended to refer to secure tenancies from social housing providers but it is believed that this Act could result in more claims being made. You are warned.
With regard to common parts the Act does provide that reasonable adjustments should be made to physical features. Currently the Home Office has said they are considering when to bring these provisions into force. It is likely that if and when brought into force these will make some fairly significant changes which are believed will offer disabled occupiers greater flexibility and independence. A case of watch this space!”
Filed under: England & Wales, FLW Article, comment, regulations