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If a group of tenants within a block of flats are investigating the possibility of collectively acquiring their freehold, one matter that they need to consider is how they may ‘plug the funding gap’ if some of the flat owners do not wish to participate in the claim. ‘White knight investors’ are commonly used as a way of filling this funding gap.
Each tenant will usually be responsible for paying the premium apportioned to their flat, and they must then consider how to fund the premium attributable to the non-participating flats.
In smaller blocks of flats, the participating flats may simply split the premium apportioned to the non-participating flat equally between them. In the future when the non-participating flat extends their lease or wishes to acquire a share of the freehold (with the agreement of the freeholder) the premium payable will be divided equally between the owners of the freehold interest.
Alternatively, and typically in larger blocks of flats, ‘white knight investors’ may be required to participate to fund the premium attributable to the non-participating flats. Each white knight investor would usually nominate themselves to fund the premium apportioned to a particular flat or flats. On completion of the acquisition of the freehold, they would immediately be granted a 999 year overriding lease over each flat that they funded. In the future when the non-participating flat extends their lease, the premium will be paid to the white knight investor. The white knight investor would also receive the ground rent income from the non-participating flat which they funded.
The white knight investor may be a participating tenant or they may be a completely separate third party investor.
When acting for tenants in collective enfranchisement claims or acquisitions of their freeholds following a Section 5 notice by a Landlord, we will advise the tenants on the options available and will often be able to suggest prospective investors who may be able to help groups of flat owners that are seeking to plug the funding gap.
If you would like to discuss a prospective collective enfranchisement claim or have received a Section 5 offer notice from your Landlord and/or would like to obtain a quote for our fees, please do not hesitate to contact Jade Wilson on jade@leaselaw.co.uk or 0204 511 9100.
