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Bye Bye Freehold

10th March 2016

As a landlord you may have one or a number of freehold properties in your portfolio leased to residential tenants. You may receive a small rental income from these flats and also benefit from any premiums to be paid should the tenants wish to extend their leases. But beware – you could be faced with a dwindling portfolio due to what is known as ‘Collective Enfranchisement’ under the provisions in the Leasehold Reform Housing & Urban Development Act 1993 (the Act).

Tenants who have a lease that is longer than 21 years can acquire the right to buy the freehold of the building together with, if their lease grants rights to use the same, the common parts such as parking areas and gardens.  As long as certain conditions relating to the building and the number and type of tenants exercising the right are met, then the landlord cannot oppose this right and therefore must sell the freehold.

The process is detailed in the Act: –

• The tenants collectively trigger this right, by serving a notice in a prescribed form on the landlord claiming the right;
• The notice places a strict deadline on the landlord to reply;
• The tenants still have to pay a purchase price for the freehold which must be detailed in the notice and be the open market value of the freehold;
• If this amount cannot be agreed between the parties, then it is referred to each party’s surveyors;
• The landlord is entitled to request a deposit from the tenants being either 10% of the purchase price or £500 whichever the greater; and
• The landlord must reply with a counter notice either accepting or opposing the claim, the latter of which can only be done if either the notice served by the tenants is invalid or, if it is found that the criteria required in order to exercise the right are not met.

Aside from the purchase price, the tenants will be responsible for the landlord’s legal fees and surveyor’s costs in valuing the freehold.

Should you ever find yourself in receipt of a notice exercising the right to collective enfranchisement, ensure you obtain legal advice in order to clarify your obligations under the Act. Failure to take action could mean that the notice and even worse, a low purchase price suggested by the tenants, is deemed as accepted by you.

Aimee Ellery. Solicitor, Commercial Property and Business services department.

Business, Commercial Property, General, George Ide, News, Residential Property Conveyancing
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