Buying a freehold? We outline the key steps that leasehold homeowners need to follow to complete the process
If you live in a block of flats and only own the leasehold, you may decide it is time to take action.
You may be fed up with paying high ground rents and maintenance charges, and forking out for work that isn’t up to scratch or costs much more than expected.
Once you’ve decided that you want to club together and buy the freehold – via a legal process called collective enfranchisement – there are certain steps that you will need to take, including finding out whether you are eligible.
Once this has been confirmed and the leaseholders have signed a participation agreement, the process can begin in earnest. This includes agreeing a fair market price with the existing freeholder.
We take a look at the steps involved in buying a freehold once you have established that your building qualifies. They are outlined here by Lucy Barber, from the law firm Forsters.
The leaseholders may have decided to club together and buy the freehold – via a legal process called collective enfranchisement
Steps under the Leasehold Reform, Housing and Urban Development Act 1993
The Leasehold Reform, Housing and Urban Development Act 1993 is where tenants can collectively join together and require the landlord to sell them the freehold.
It is subject to the building satisfying the qualifying criteria under the 1993 Act, according to Mrs Barber.
1. Instruct a surveyor and carry out a valuation
It is crucial to make sure that the premium payable to the freeholder has been correctly valued. There is a helpful calculator on the Leasehold Advisory Service website which can help provide an indication of what the price will be.
2. Sign a participation agreement
Circulate the valuation and if at least 50 per cent of the qualifying tenants in the building wish to join together to purchase the freehold, the tenants will then usually sign a participation agreement where they all agree with each other to proceed with the freehold purchase statutory procedure.
3. Serve the statutory notice
Serve the statutory notice of claim upon the landlord requiring them to serve the freehold. The notice includes an offer price.
4. Landlord serves a counter notice
The landlord serves a counter notice and if it accepts the claim, it will likely propose a counter figure for the sum to be paid to the freehold. Landlords can only reject the notice of claim if the building does not satisfy the qualifying criteria under the 1993 Act or the notice of claim has been prepared incorrectly.
Negotiations take place between the respective party’s valuers as to the price to be paid for the freehold.
6. Tribunal application
Within six months of the date of the counter notice the tenants need to make an application to the First Tier Tribunal if the terms have not been agreed. The Tribunal can determine the terms of the acquisition should the parties not reach agreement.
The terms of acquisition are the purchase price and also the terms of the transfer of the property
7. Terms agreed
Either there is a First Tier Tribunal hearing and the tribunal determines the terms of acquisition, or terms are agreed between the parties amicably. The terms of acquisition are the purchase price and also the terms of the transfer of the property.
Usually, but it is not essential, a contract is drafted by the landlord and sent to the tenants for approval.
6. Exchange of contracts
7. Completion of the transfer of the freehold
There are various statutory deadlines that need to be met throughout the process, and so it is important to obtain legal advice.
Enfranchisement under Landlord and Tenant Act 1987
This is the Act used when a landlord wishes to sell the freehold of a building containing two or more residential flats and the building fulfils the criteria set out under the 1987 Act.
The landlord first has to serve a Section 5 notice upon all the residential tenants offering them the opportunity to purchase the freehold at a price outlined in the notice, according to Mrs Barber.
The tenants can accept the notice provided that more than 50 per cent of the qualifying tenants all join together and accept the notice.
If the tenants do not accept the notice the landlord is free to sell the freehold to whoever they wish within the next 12 month period, but they are not allowed to sell it for a sum less than they offered it to the tenants for.
The following are the steps of this process…
1. Section 5 notices
The landlord serves the section 5 notice offering the tenants the opportunity to purchase the freehold and sets out in the notice all the terms of the acquisition including the sale price in the notice or attaches the relevant contract of transfer document proposed to be entered into.
2. Nomination notice
The tenants have two months within which to accept that notice and if they accept the notice they have a further two months to serve a nomination notice – which is a notice telling the landlord who will purchase the property on behalf of all of the participating tenants.
3. The landlord issues a contract to the tenants for approval
4. Exchange of contracts for the sale of the freehold
5. Completion of the sale of the freehold
Mrs Barber explained: ‘The landlord does not have to serve section 5 notices in order to sell the freehold to the tenants pursuant to the 1993 Act.’
But she added: ‘A situation could arise where an appropriate amount of tenants will decide to club together to purchase the freehold and rather than serve a notice of claim under the 1993 Act they approach the landlord to see if he would be willing to sell them the freehold without going through the 1993 Act.
‘If the landlord is amenable to that it is possible for the parties to agree the purchase price and once they agree the purchase price, the landlord has to serve section 5 notices and the steps above in the 1987 Act then apply.’