Collective Enfranchisement (Buying the Freehold)

The following information has been sourced from the LEASE website.
Since the introduction of the Leasehold Reform Act 1967, leaseholders of houses have had the statutory right to either purchase the freehold of their property or extend their leases by 50 years (enfranchisement).

Owners of flats on the other hand have had to wait until the introduction of the Leasehold Reform Housing and Urban Development Act 1993 (the third of the five principle Acts of Parliament relevant to residential management) before they got both rights.

Now, a group of qualifying leaseholders can set up a Resident Management Company to purchase the freehold and become the new landlords. They can decide the composition of the participating group and the terms of their participation. As long as 50% of qualifying leaseholders participate in the claim, (the statutory minimum) there is no automatic right for those that aren't invited to participate in the process. Excluded leaseholders can't launch their own claim  for the same freehold and they remain in exactly the same situation as they were at the outset in that they still have the same lease and pay the same ground rent. The only difference to them is that they will have a new freeholder in whoever the Nominee Purchaser is, and will pay ground rent to whoever finances the non-participant element of the purchase price.

It is important to note that collective enfranchisement can take a number of years to achieve in a large building, and not just when the freeholder resists. Common areas can be owned by several different parties. There may also be a residents association where leaseholders are not shareholders of the RMC and information sent during the process has to be distributed correctly.

Decisions made by the new RMC have to be based not just on the restrictions and requirements of the lease but also on the relevant legislation and codes of practice.

ABSENT FREEHOLDER: Vesting Order

One of the key provisions set down in the Leasehold Reform, Housing And Urban Development Act 1993 is a Vesting Order,  introduced to overcome the problems of there being an absent freeholder. When leaseholders want to collective enfranchise, under s27 they can make an application to the County Court for such an order. Before they do so however they must serve a Prelimary Notice on the landlord unless the Court agrees to dispense with the notice.

Note: Vesting Orders be costly and time consuming so they can also apply for an Acquisition Order under s33 of the Landlord and Tenant Act 1987.

The application needs to be made to the County Court on a CPR Part 8form and the court will need to be satisfied that all reasonable attempts to find the landlord have been made such as whether they have:

• Served their notice of claim on the freeholder's last known address or served the same notice in the London Gazette or a local paper;
• Sent a request to the court to dispense with the serving of a notice;
• Searched the Land Registry to make sure that the freeholder no longer owns his last known address or engaged the services of an Enquiry Agent;
• Provided witness statements to confirm that a visit to the Freeholder’s last known address provided no forwarding address, or;
• Provided an absentee freeholder title indemnity policy that a recent purchaser of a flat in the block may have taken as a condition of securing the mortgage.

Case Bundle

In addition to the above, a case bundle will need to be put together to include copy leases, copy notices, and draft land registry transfer forms.

District Judge Or Court Hearing

A date for a hearing may then be set by the County Court but if the district judge is satisfied with the efforts made to trace the freeholder he will then make a ruling on the basis of the facts presented to him, without the need for a hearing. The Vesting Order will state that the Nominee Purchaser is allowed to skip the stage of serving an Initial Notice and can go straight to the Leasehold Valuation Tribunal in order for them to decide on the freehold price.

If the case does go to a hearing then the County Court will issue a judgement setting out that the freehold may be acquired by the leaseholder(s) with funds to be 'vested' in the Court.

Price Put Forward

The  LVT will only consider the price put forward by the leaseholders when calculating the freehold value because there is no landlord to dispute the price or the valuation made (under s26 of the Leasehold Reform Housing And Urban Development Act 1993). Once the LVT has determined what price is to be paid, the decision of the Tribunal will be sent to the County Court. The court will then make the order for the transfer of the freehold and the amount determined by the LVT paid into court before the title can be transferred into the leaseholder's management company. As soon as the title is transferred, the leaseholders can apply to the Land Registry for the landlords’ title to be re-registered in the name of their own management company. The landlords only claim (should he later reappear) will be against the money that has been paid into court.

If any leaseholder wishes to sell before the vesting order is granted, the court papers will have to be amended and the the parties substituted.