In 1993 tenants occupying blocks of flats were given the right to collectively acquire the freehold of their buildings. After a number of further legislative changes including the Commonhold and Leasehold Reform Act 2002, even more properties qualified benefiting even more leaseholders. Is it right for you? Richard Cleminson, Director Kinleigh Folkard Haywood Surveying, investigates.
First of all don’t let the title put you off. Collective enfranchisement is a grandiose term for the coming together of leaseholders to buy the freehold of their property. There are a number of reasons why this is likely to be a good thing, unsurprisingly, the main one is financial. By owning the freehold of a property, the residents who participate can agree to grant themselves new long leases at a peppercorn rent.
Furthermore, the control and perhaps ownership, of the management company – so often regarded as the scourge by lease holders – will fall to the tenants’ nominee company. Ultimately, however, the strongest investment case is often the attraction of being part of a tenant owned and controlled building which proves to be such a good selling point with buyers.
Of course, not every leasehold property qualifies, but as long as the building is a self- contained block of flats, which can include converted, as well as purpose built buildings and has no more than a 25% non- residential use then a collective enfranchisement is generally a legitimate course of action.
Two thirds of the flats must be let to qualifying tenants, defined as those holding leases with initial terms of at least 21 years and collectively the participants must make up at least 50% of all of the flats in the building. Importantly, it is no longer necessary for a qualifying tenant to have owned a flat for a minimum period or to have even lived in it.
It may take three months to implement a collective enfranchisement and you will need legal advice and specialist surveying advice. After all, you need to know how much you are likely to have to pay even if only for the purposes of negotiating with the freeholder. It is highly likely that the freeholder will employ a specialist valuer and tenants will almost certainly need one to negotiate on their behalf. Our advice, in the case of any serious investment, is to get some professional advice and undertake a full costs benefit analysis once the initial investigative work has been undertaken.
As a first step, if a residents committee already exists, canvass opinion among fellow residents and gauge their appetite for collective enfranchisement. You can then invite a legal specialist to come and answer questions. Collective enfranchisement can offer a real investment opportunity to tenants.