Collective Enfranchisement

If you are a freeholder who has been served a section 13 collective enfranchisement notice from your tenants we can assist you.

Am I required to transfer the freehold interest to the tenants?

Once instructed, we will investigate the validity of the section 13 notice of claim that has been served on you and the entitlement of the tenants to acquire the freehold. If we find any discrepancies during our investigations, we will ask the tenants’ solicitor to clarify these and will then advise you whether it is likely that the tenants have a valid claim for the acquisition of the freehold.

If the tenants have a valid claim for the acquisition of the freehold then you are required to transfer the freehold interest to the tenants.

Do the tenants qualify to acquire the freehold interest?

To qualify for a collective enfranchisement claim the following conditions must be fulfilled:-

  1. the claim must be made in respect of a self-contained building or a self-contained part of a building (which can be severed vertically from the rest of the building); and
  2. at least two thirds of the flats must be let on long leases (leases which were originally granted for a term of at least 21 years); and
  3. the commercial space must not exceed 25% of the floor space in the building; and
  4. at least 50% of the flats in the Building must participate in the claim, save that if there are only two flats in the building, they must both participate.

What is the cost to me of the collective enfranchisement claim?

The tenants are generally responsible for your reasonable costs relating to their acquisition of the freehold interest. This includes your legal costs in connection with the legal aspects of investigating the claim, serving a counter-notice and the transfer of the freehold interest and your valuation costs in connection with obtaining advice on the premium that you are likely to obtain for the freehold interest.

It must be noted that the tenants are not responsible for your costs which are incurred in relation to any negotiations which will include your valuer’s costs in connection with negotiating the premium and any protracted negotiations in relation to the terms of the Transfer Deed (the legal document that will transfer the freehold interest to the participating flat owners).

The tenant is also not responsible for any costs that you incur in respect of preparation for or attendance at a Tribunal hearing.

LEASE Law recover their fees from the tenants on a time-cost basis, and if there are any additional costs that are not likely to be recovered from the tenants, we will provide you with a breakdown of these estimated additional costs and obtain your agreement to the estimate before proceeding to carry out the work (this includes any Tribunal work).

How long will it take to finalise the claim?

We usually estimate that the procedure will take 6-12 months from the service of the initial notice to completion of the sale of the freehold.

We do work with each client and their individual objectives to either speed up or slow down completion. For example, if you would like to complete as soon as possible to receive the completion monies as soon as possible then we would work with all the parties to try and accelerate completion.

What is the procedure for the collective enfranchisement claim?

The collective enfranchisement procedure is commenced when the participating flat owners collectively serve a formal notice of claim on the freeholder offering the premium (that must be realistic) that they are willing to pay for the freehold which will be advised by their specialist enfranchisement valuer. The formal offer notice must provide a deadline (which is at least two months from the date of the receipt of the formal offer notice) by which the freeholder must respond with their formal counter-notice.

Before the formal counter-notice notice is served, the freeholder may request:-

  1. That the tenants provide access to the freeholder’s valuer to inspect the property for valuation purposes; and
  2. That the tenants deduce their title to each flat within the building to the freeholder’s solicitor.

The freeholder may then respond formally in the following three ways:-

  1. Admit that the participating flat owners have the right to acquire the freehold interest in the building but dispute the premium offered. The freeholder must then provide a counter-offer of the premium that they will accept for the freehold.
  2. Admit that the participating flat owners have the right to acquire the freehold interest and accept all the terms in the formal offer notice including the premium offered. In this case the collective enfranchisement claim would proceed to completion.
  3. Dispute that the participating flat owners have the right to acquire the freehold (there are very limited ways that the freeholder can dispute a collective enfranchisement claim). The participating flat owners can then apply to the court for a declaration that they are entitled to acquire the freehold.

It is important to note that if you do not respond at all the tenants are entitled to acquire the freehold for the terms set out in their initial offer notice, including the premium offered. Therefore, it is essential that you respond on or before the counter-notice deadline date.

In the vast majority of collective enfranchisement cases the freeholder will proceed via option 1. Following option 1, after the freeholder serves their counter-notice, there is an initial period of six months from the date of the counter-notice in which the parties’ valuers will enter negotiations with a view to agreeing the premium and the parties’ solicitors will enter negotiations with a view to agreeing the terms of the Transfer Deed (the legal document that will transfer the freehold interest to the participating flat owners).

If the premium and/or terms of the Transfer Deed cannot be agreed within this six month time period then an application will be made to the Tribunal so that the Tribunal can determine the premium payable and/or the terms of the Transfer Deed. A Tribunal date will be set approximately 4-6 months after the application is made. The parties can continue to negotiate the premium during this time period and if all the terms of the acquisition (including the premium and terms of the Transfer Deed) are agreed before the Tribunal date then the Tribunal proceedings can be vacated.

If the tenants do not make this application to the Tribunal before the end of the six month period then the collective enfranchisement claim is ‘deemed withdrawn’ and cannot be completed. The tenants will have to pay all the freeholder’s recoverable costs in connection with the failed claim and will have to wait one year from the date that the claim was deemed withdrawn before they can serve another notice (in which case the term of each lease will be shorter and the premium is likely to be more expensive).

Once the terms of the Transfer Deed are agreed between the parties or determined by the Tribunal, the parties have up to a maximum of four months to complete the transaction, which is when the premium and associated costs are paid to the freeholder’s solicitors.

How can LEASE Law help me?

We are specialist solicitors who can act on your behalf in respect of the legal requirements for transferring the freehold to your tenants under the collective enfranchisement procedure. LEASE Law will recover their fees from the tenants on a time-cost basis, and if there are any additional costs that are not likely to be recovered from the tenants, we will provide you with a breakdown of these estimated additional costs and obtain your agreement to the estimate before proceeding to carry out the work (this includes any Tribunal work).

The work that we will carry out for you includes receiving and investigating the initial notice to check its validity, investigating the leasehold and freehold titles to the building, preparing and serving the counter-notice on the tenants’ solicitor, drafting and negotiating the terms of the Transfer Deed and completing the transfer. We will also liaise with your specialist valuer in respect of the premium as and when necessary.

We can also recommend specialist lease extension valuers who have extensive experience and expertise in this area to ensure that the premium that you receive for the freehold interest is as high as possible. Your valuer will provide you with an initial report which will advise you on the premium that you can expect to receive following negotiations and will also recommend the counter-offer premium to put into your counter-notice. Your valuer will also negotiate the premium with the tenants’ valuer on your behalf following the service of the counter notice.

If you would like LEASE Law to assist you, please send a copy of the Section 13 notice of claim or have a copy of the notice to hand, and contact Jade Wilson (jade@leaselaw.co.uk or 0204 511 9100) or Joanna Botley (joanna@leaselaw.co.uk or 0204 511 9101) for a no obligation discussion about the collective enfranchisement claim.