How leaseholders can buy the freehold of their flat through Collective Enfranchisement
If you’re fed up of your freeholder’s high ground rents, expensive service charges or poor maintenance, you may wish to buy the freehold of your flat. There are a number of benefits of doing so, including the option to extend your lease cheaply; however, it is essential you follow the correct procedure and understand exactly what you’ll be paying before you begin.
Who owns the freehold of a leasehold property?
Generally speaking, your landlord will own the freehold. This means your landlord owns the building, its common areas and the land it stands on. If your leasehold property is managed by a letting agent, you can speak to them to find out who your landlord is. You cannot buy the freehold in its entirety yourself, but as a leaseholder you can buy a share of the freehold collectively with other leaseholders through a procedure called Collective Enfranchisement. By doing so, you would effectively become your own freeholder and share ownership of the building, the land it stands on and common areas with the other tenants who purchased a share of the freehold.
What are the benefits of buying the freehold?
Purchasing the freehold of your flat may be expensive, but there are a lot of benefits of doing so. You could extend the lease on your property by up to 999 years without having to pay high fees and you would no longer need to pay ground rent. It will also usually be far easier to obtain a deed of variation of lease. Plus, you could control how and when maintenance is performed on your property instead of paying service charges to your landlord. Although this does mean it will be your responsibility to ensure maintenance is performed, you can choose who to hire instead of paying high service charges for low-quality work. This can be a much more effective solution than constantly going through service charge disputes if your landlord consistently charges unfair rates for maintenance. However, it is important to consider whether you want to be in charge of organising (and paying for) maintenance of your building. If the only reason you’re considering buying the freehold is to extend your lease cheaply, it may be a better idea simply to pay for a lease extension and leave maintenance to your freeholder. You can read more about the lease extension process on our website.
Does buying the freehold increase the property value?
As buying a share of the freehold allows you to extend your lease cheaply, doing so can significantly increase your lease’s value and its marketability. However, be aware that buying the freehold and extending your lease both become much more expensive to do once your lease has less than 80 years remaining on it.
Do I have the right to buy the freehold of my flat?
If eligible, you can buy collectively buy the freehold to your flat with other leaseholders through collective enfranchisement. To be an eligible lessee, usually you must have had at least 21 years on your residential lease (commercial or business lessees do not qualify) at the time it was originally granted and own less than three of the flats in the building. Additionally:
- The building must contain at least two residential flats
- No more than 25% of the flats can be used for non-residential purposes
- At least two-thirds of the flats must be owned by eligible lessees
- At least half of the total number of flats in the building must collectively agree to buy a share of the freehold (in buildings with two flats, both lessees must agree)
- The freeholder cannot be a charitable housing trust and qualifying tenants cannot have been provided the flat as part of the charity’s role
Can the freeholder refuse to sell the freehold?
The landlord can refuse to sell the freehold if the above criteria are not met. However, if the lessees do not fit this criteria and still wish to purchase the freehold, they can approach the freeholder and ask if they would be willing to sell the freehold to them on an informal basis.
Right of first refusal
If your landlord has decided they wish to sell the freehold, lessees have the legal right of first refusal. The price your landlord offers you is presented on a non-negotiable basis, but if you turn the offer down, your freeholder cannot sell the freehold to anyone else for a lower price or on different terms for 12 months. After this 12-month period, they are then free to sell the freehold to anyone else for whatever price and whatever terms they would like. Read more about this in our blog on Selling a freehold with a Section 5 Notice.
How do I buy the freehold title of my flat?
The process generally follows as such:
- Firstly, you will need to discuss with your neighbours and see if they are willing to purchase the freehold of the property with you. Even though you don’t need half of the flats to agree in order to buy the freehold on an informal basis, your freeholder is highly unlikely to sell it to you alone.
- You should have your solicitor create a participation agreement and have every lessee sign it – this will prevent them from being able to drop out on the sale and include the terms of the leases once the freehold has been purchased.
- Someone needs to take charge for handling the transaction. You and the other lessees may either select a “nominee purchaser” to manage the purchase or set up a limited company. Although it takes time and money to set up a company (as well as some maintenance), doing so can prevent disputes later on down the line.
- Next, you will need the valuation from the surveyor. If you are taking the formal route, you cannot serve the tenants’ notice without an accurate valuation.
- Once this has been obtained, you may serve the tenants’ notice onto your freeholder complete with the signatures of all participating tenants. The freeholder should then serve a notice in reply within two months, either accepting or refusing the claim.You must ensure that the tenants’ notice you serve is correct, or else you may not be able to buy the freehold for another 12 months. With Starck Uberoi Solicitors, you can be confident that your notice will be submitted correctly and efficiently.
- If they accept, you should then negotiate the cost of the premium with them. Once a price has been settled on, you will need to complete the relevant paperwork with a solicitor to finalise the sale. Your freeholder cannot legally refuse to sell you the freehold if the participating lessees meet the aforementioned requirements. If they refuse with no fair reason, you can take them to the County Court.
What can I do if my landlord refuses to sell for a reasonable price?
Although there is no restriction of the price of the premium, your landlord cannot avoid selling the freehold by setting an unrealistic premium price. Should they attempt to do this, you can apply for a first-tier tribunal, at which the arbiter will decide a fair price for the premium. You should ensure this is done within 6 months of the date the notice in reply was served.
How much does it cost to buy the freehold?
The premium your freeholder can charge for the freeholder has no restrictions, but will usually depend on the value of the property (as supplied by a surveyor), the length of your lease and the ground rent you pay. As mentioned, it could also be more expensive if you and the other lessees have short leases remaining. As well as the price of the premium, there are other costs you (and the other lessees who wish to buy) will need to take into consideration before you decide to buy the freehold. These may include:
- The surveyor’s fees
- The leaseholder’s legal fees
- The freeholder’s legal fees
- Stamp Duty Land Tax – at the time of writing, you would only need to pay this if the value of the property is worth over £125,000.
It is important to note that if you withdraw from the sale at any point through the procedure (or if there are delays or errors in the paperwork), you will still have to pay the freeholder’s costs and expenses.
Can I buy the freehold informally without collective enfranchisement?
Perhaps you do not qualify for Collective Enfranchisement but still want to purchase your property’s freehold. You could buy the freehold informally by asking your landlord if they would be willing to sell the freehold to you at a price negotiated between you. Your landlord is under no obligation to sell you the freehold this way, but they may be open to the idea. Bear in mind however that collective enfranchisement can offer more protection as the procedure must meet firm deadlines and the premium price is calculated based on the date on which the notice is served – therefore, rising property prices and shortening leases will not drive up the price of the premium.
How long does it take to buy the freehold?
This will depend on the route in which you take to purchase the freehold. The informal route can be either longer or shorter, as there are no strict deadlines by which the sale must be complete. The amount of time it will take will instead depend on how long it takes you and your freeholder to agree on a price. Alternatively, Collective Enfranchisement is a lot more regimented, but can still take anywhere between 3 months to over a year, if paperwork is not completed correctly and on time or if your freeholder is unwilling to sell.
Am I entitled to right of first refusal if my landlord wants to sell the freehold title?
If you are a qualifying lessee, you will likely be entitled to Right of First Refusal. Should this be the case, the landlord must serve a Section 5 Notice onto you and all other qualifying tenants and give you an adequate time in which to respond before they can sell the freehold title to anyone else. Read more about Selling a freehold title with a Section 5 Notice in our blog post.
Do I need a freehold conveyancing solicitor to buy the freehold of my flat?
You absolutely should instruct a conveyancing solicitor to buy the freehold. It is vital that your serve the tenants’ notice onto your freeholder correctly, plus you will need a conveyancing solicitor to conduct the transaction on your behalf. With Starck Uberoi, you can be confident that your freehold conveyancing is in expert hands.
How Starck Uberoi can help
Our leasehold solicitors are well-known for their exceptional conveyancing services, as demonstrated by their Law Society Accreditation under the Conveyancing Quality Scheme (CQS). With the Starck Uberoi app, you can even receive real-time updates on your conveyancing matter and contact your solicitor on the go at any time. To get started, book an appointment with us today by calling 020 8840 6640 or emailing solicitor@starckuberoi.co.uk.
Our solicitors on Brentford High Street, are just a short walk away from Brentford railway station. Our Belgravia solicitors are located Just a 5 minute walk from Victoria tube station in Grosvenor Gardens. Our solicitors located in Ealing London are only a short walk from both Ealing Broadway and South Ealing and our solicitors in Richmond Surrey have the pleasure of overlooking the picturesque Richmond Green. Finally our solicitors in Canterbury Kent are located in the within the UNESCO World Heritage Site of Canterbury Cathedral.
Our partner, Raminder Uberoi, can also provide a Notary Public Service at any of our London offices.
