Should we initiate collective enfranchisement or is it too late?

by Readers Question

2 weeks ago

Should we initiate collective enfranchisement or is it too late?

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Should we initiate collective enfranchisement or is it too late?

A few months back the freeholder of our building wrote to all the leaseholders (via his solicitor) giving us ‘Section 5B’ Notice of his intention to sell the Freehold via auction with a deadline for the majority of qualifying leaseholders to make him an offer.

So the first thing we leaseholders did was make sure there was enough qualifying interest to purchase the freehold among us and conduct a full survey to get an idea of the value for the freehold.

We then responded with the full names and signatures of all the qualifying leaseholders of our acceptance of offer under the Landlord & Tenant Act 1987 Part 1 and requesting receipt of this notice and advising them of the solicitor who would be acting on our behalf for this matter.

They responded to this requesting an offer for which we duly replied.

Since them they have responded advising that they wish to continue to auction. Is this the normal process? We have made an offer and would negotiate, but this seems to have stopped us in our tracks. If we have first right of refusal then why would he want to proceed to auction? If someone does make an unrealistic offer at auction how can we contest this?

We are desperately seeking some additional guidance as to our rights and how to proceed. Should we initiate collective enfranchisement, or is it too late?

Many thanks

Mark

Comments

Neil Patterson

2 weeks ago

Hi Mark,
In summary after research you are most likely to need legal assistance, but under qualifying conditions you do have first right of refusal. The leasehold advisory service has a lot of info for reference >> http://www.lease-advice.org/advice-guide/ce-getting-started/

It is a right, subject to qualification, for the owners of flats in a building, and sometimes part of a building, to join together and buy the freehold of that building. The relevant Act is the Leasehold Reform Housing & Urban Development Act 1993 (as amended).

Provided at least 50% of the flats in the building, who are qualifying tenants, participate and the building qualifies the landlord cannot refuse. The procedure is quite complex and the correct notice needs to be served on the landlord, so it is advisable to use a specialist solicitor and surveyor when undertaking this process.

There is a formula in the 1993 Act which is used to calculate the amount the leaseholders will have to pay to buy the freehold, known as the premium. Again the formula is complex and a specialist surveyor would be needed to provide an estimate of the premium to participating leaseholders.

The leaseholders have to decide how they will acquire and hold the freehold and this is often via a company of which they will all be members. This will also be the nominee purchaser, who will be named in the initial notice to the landlord.

Basic Outline of the process:

Checking Eligibility (of the building, the tenants etc)
Organising for Enfranchisement
Choosing the Nominee Purchaser
Selecting and Instructing professional advisers (solicitors and surveyors)
Assessing the Purchase Price
Serving the Initial Notice
Preparing for the subsequent procedures

The above need not necessarily be in this order and in most cases several issues will proceed together. It is important, however, that all the steps are taken and no critical area neglected. Once the Initial Notice has been served, the procedure is running and the nominee purchaser is likely to be subject to demands for information and to deadlines; a default at any stage could endanger the action.
The participating tenants are liable for the freeholder’s and any other relevant landlord’s reasonable professional fees from the moment they serve Initial Notice, whether they complete or not.

Neil Patterson

2 weeks ago

If the Landlords wants to refuse:

The landlord’s Counter-Notice

The landlord must serve his Counter-Notice by the date specified in the Initial Notice; this must:

agree your right to the freehold and accept your terms (or propose alternative terms); or
not agree your right and give reasons why not (which will then need to be determined by the county court); or
neither admit nor deny entitlement, but state that an application is to be made to court for an order that the right to enfranchise cannot be exercised on the grounds the freeholder intends to redevelop the whole or a substantial part of the premises (see below);
any leaseback proposals must be specified(see below)

Redevelopment

The freeholder will not be obliged to sell the freehold if he can prove to the court that he intends to demolish and redevelop the whole or a substantial part of the building. This can only apply where at least two-thirds of all the leases in the building are due to terminate within a period of five years from the date of service of the Initial Notice.

Leaseback

Where the freeholder owns a flat, or flats, in the building which are not let to a qualifying tenant, he has the option of taking a leaseback on the flat(s) on a 999 year lease. A local authority freeholder or Housing Association must take a leaseback where they have a “secure tenant “in one or more flats in their building.

Where there is a leaseback the value of the flat(s) is deducted from the calculations. Where, after service of the freeholder’s Counter-Notice, the Nominee Purchaser and the freeholder cannot agree on the price or some other aspects of the conveyance, then after the initial two months, following service of the Counter-Notice, either party can apply to the Tribunal for an independent determination on the issue. Clearly, the leaseholders`’ professional advisers must have all relevant documents at hand to deal with such an application.

In cases where the freeholder fails to serve a Counter-Notice by the date specified in the Initial Notice, the participating leaseholders may apply to the county court for a Vesting Order. This is an order allowing them to acquire the freehold on the terms of the Initial Notice (including the premium proposed). The court, if satisfied of the right to enfranchise, will grant the Order. The application must be made to the court within six months of the date on which the Counter-Notice should have been received.

Further advice and guidance on the law is available from the Leasehold Advisory Service at any time during the preparation stage or following commencement of the action.

Procedures and statutory time limits

Leaseholders serve S11 Information Notice (discretionary).
Freeholder must respond within 28 days
Leaseholders must make arrangements for a Nominee Purchaser and, if forming a company, register at Companies House.
Participating tenants serve S13 Initial Notice.
The ‘valuation date’ will be fixed as the date of service of the S13 Initial Notice.
Freeholder may request evidence of the title of participating leaseholders, but he must do so within 21 days of receipt of the Initial Notice.
The Nominee Purchaser must respond to his request within 21 days.
Freeholder must serve a Counter-Notice by the date specified in the Notice. This date must be at least two months from the date of service of the Initial Notice.
Where the freeholder fails to serve the Counter-Notice, the Nominee Purchaser must apply to court within six months for a Vesting Order, otherwise the Initial Notice is deemed withdrawn.
If the Counter-Notice disputes qualification, the Nominee Purchaser must apply to the court, within two months of Counter-Notice, for declaration that Initial Notice is valid.
After service of the Counter-Notice, if terms cannot be agreed, either party may apply to the Tribunal. This must be done at least two months from, but within six months of, the date of service of the Counter-Notice.
The application fee to the Tribunal is £100 and the hearing fee (on receiving notice of a hearing date) is £200
The Tribunal determination becomes final 21 days after it is sent out by the Tribunal. Appeals must be made within this period to the Lands Tribunal with leave of the Tribunal.
freeholder must provide a draft contract within 21 days of the Tribunal’s determination becoming final (taking into account rights of appeal).
The parties are expected to enter into the contract within a period of two months after the Tribunal’s decision becomes final (the ‘appropriate period’).
If the appropriate period elapses without exchanging contracts, then the participating tenants must apply to court within a further two months for a Vesting Order.

Mark Weedon

2 weeks ago

You may find if the sale goes to auction you will manage to purchase the property at a lower price. Your interest will be registered and it will put off some buyers because firstly they may do all their due diligence win the auction then you sale we will buy and secondly there is nothing to stop the lesees forming an RTM subsequently which will stop the purchaser earning monies from mangement and repairs etc.

@ Section42

A week ago

It is normal for the property to proceed to auction. Provided that it meets the reserve in the room then it will be sold. If you serve the acceptance, nomination notices and a further notification within time and before the auction then you will be able to have the same rights as the eventual bidder - i.e. to buy at that price. If the property is sold elsewhere and you still want to buy you could of course use the 1993
Act to compel a sale but then the likely price is not that likely to be less that it was sold for at auction!

David Price

A week ago

Reply to the comment left by Mark Weedon at 08/09/2017 - 10:48
Good point about RTM company, but why wait until the Freehold is sold, form the company now this will further deter any prospective buyer.

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