Collective enfranchisement is the term for the right of residential tenants of qualifying premises with long leases to forcibly acquire the freehold of their building from their landlord. The right is derived from the Leasehold Reform Housing and Urban Development Act 1993 in relation to flats which also provides for the individual right to a new lease. For houses, the relevant legislation is the Leasehold Reform Act 1967.
Why should we do it?
The right to acquire the freehold is a collective right for all of the qualifying tenants in a building. However, the benefits can very much be felt on an individual basis.
As a leaseholder, it is easy to forget that you do not own the property in which you live. You only have the right to use it for a set period in accordance with the terms of the lease. That means for the most part that there is at least one third party involved in the upkeep of the building in which you live, whether it be the freeholder or the management company. Not only that, leaseholders are obliged to pay ground rents and service charges to these third parties for the duration of the lease term.
There can often be a conflict of interests between landlords and tenants as to the repair and maintenance of a building or even in relation to rooftop telecoms masts or additional rooftop units. Taking ownership of the freehold from your landlord brings with it a measure of control over things like service charge expenditure and choice of managing agent, things which can really impact upon quality of life in a development.
2. Enhanced Value
As I set out above, the lease is an asset which is diminishing in value. By acquiring the freehold a group of tenants can protect themselves from that depreciation as so long as they own the freehold they are free to protect or increase the length of their lease. Where the residual term of the lease is long (say in excess of 99 years), the issue is more protecting the existing value rather than enhancing the current value. That said, from a saleability perspective estate agents always remark to me that a share of the freehold makes a property that bit more attractive and avoids the age old question from buyers “how much will it cost to extend the lease?”.
3. Rooftop development or intensifcation schemes
Just because the building in which your leasehold property is situated has been there for a long time does not mean that the development opportunities have been exhausted. Roof space developments or new building within the curtilage of an estate can present lucrative opportunities for specialised developers. However, as with any building project with residents nearby, the consequnces for the existing leaseholders of the noise, nuisance and inconvenience of such development above or around them can be very unwelcome. Not to mention the frequent occurrances of water leaks into properties from poorly or hastily built penthouses which I have litigated over inthe past.
Collective enfrancisement provides one of the main ways to avoid or frustrate roof space developments in particular. It can often be a race against time to acquire the freehold once a landlord has made its application for planning permission and so there is often an advantage of acquiring the freehold even before such plans have surfaced.
One of my most popular blog artices concerned a recent case which could compromise roof space developments ()https://leaseholdlawyer.wordpress.com/2011/01/21/are-roof-space-leases-now-compromised-by-enfranchisement-rights/) so I know that this is often a concern for tenants.
4. Avoid Grount Rent
While ground rent is rarely the most expensive leasehold liabilty that a tenant will have, if you acquire the freehold to your property then it is one less expense to worry about.
While the leases will still oblige all of the tenants to pay ground rent once you have enfranchised, one of the first exdercises that I advise clients to undertake after enfranchisement is to extend their leases to the maximum term and to extinguish the ground rent (as if it were a statutory lease extension). Rarely, is there any point in retaining the ground rent when the tenants own the freehold, except from those tenants who have not participated in the purchase of course!
This is a new section to the blog and I will be preparing an outline of the pros and cons and an outline of how the process works and what it should cost.