Under the Leasehold Reform, Housing and Urban Development Act 1993 qualifying leaseholders are entitled to purchase the freehold as long as there are 50% or more qualifying tenants participating in the enfranchisement claim. The original lease must be in excess of 21 years.
There are certain restrictions to the 1993 Act such as:
- If the freeholder originally owned the building and converted it into four or fewer flats, AND they or a family member have lived there there for past 12 months there is no right to enfranchise.
- The Crown, National Trust Properties, Charitable Housing Trusts and those in a Cathedral Precinct are also exempt.
- There cannot be more than 25% commercial use.
- If there are two flats both must participate.
For leaseholders to exercise their right to buy their freehold under the 1993 Act they will need to serve a Section 13 notice on the freeholder stating the figure they propose to pay for the Freehold. It is extremely important to use a solicitor (a specialist in Leasehold Reform) to advise on a participation agreement, advise you if you need to set up a company to hold the freehold and serve the notice, as certain mistakes will invalidate the notice. The figure proposed within the notice also must be deemed as ‘reasonable’ and therefore an RICS accredited surveyor should carry out a valuation to advise the appropriate figure to insert.
By serving a Section 13 notice this protects the leaseholders interest, preventing the leases dropping any lower (for the duration the Section 13 notice is valid) and the property must be valued as at the date of notice. The Section 13 will state a date that the freeholder must provide a counter notice by. This is typically 2 months later.
In this time the freeholder may arrange for his own surveyor to visit the property to carry out an inspection and a valuation on their behalf.
In accordance with the 1993 Act the leaseholders must cover the Freeholder’s ‘fair and reasonable’ valuation and legal costs. These can vary depending on the number of flats in the building.
Unlike the Leaseholders’ proposed figure the Freeholder's counter offer does not need to be deemed as ‘reasonable’, and therefore it can be expected to be significantly higher than the premium proposed in the Section 13. The freeholders counter notice is called the Section 21 notice.
Once the Section 21 notice is received there is a statutory 2 months to enter into negotiations and agree the cost of the freehold. Should an agreement not be reached in this time an application can be made to the First Tier Tribunal who will decide on the appropriate premium to be paid.
For more complicated negotiations, 2 months may not be considered long enough to reach an agreement, therefore the 1993 Act states you have a total of 6 months from the date of the Section 21 notice to reach an agreement or make an application to the FTT otherwise the Section 13 notice is deemed withdrawn.
As the original valuation was carried out by your surveyor it is advisable they deal with the negotiations for the price payable for the freehold. They will be able to provide evidence to the opposing party to support and strengthen their clients position.
Once the premium is agreed the solicitors will deal with agreeing the terms of the transfer, complete the transaction and register the new owners at land registry.
Whilst the Leasehold Reform Housing and Urban Development Act 1993 sets out this formal route it doesn't necessarily mean you have to use it. It can be considered that the formal route is time consuming and can take longer than if a leaseholder was to approach the freeholder on an informal basis.
