Collective Enfranchisement

8th Jul 2021

If you own a leasehold flat, you don’t actually own the building or the common parts. These areas are owned by the freeholder or landlord to whom you will pay service charge, ground rent, insurance, and other charges to which to have little control over. In this short guide we look at how you can break free from this situation by buying the freehold of your building, a term called collective enfranchisement.

Leaseholders of flats have a joint right, with other flat-owners in the block, to buy the freehold of their building. This is known as a right of “collective enfranchisement” and it means that the leaseholders become their own freeholder.

Buying the freehold isn’t something you can do on your own – you have to get your neighbours involved too. The law allows at least half of the leaseholders to come together to buy the freehold of the block from the freeholder/landlord. At the end of this process the flat owners would:

• Together own the freehold of the building (often by forming a limited company – this company will be owned and controlled by the flat owners); and
• Separately, each would still have a long lease– but instead of this lease being from the old freeholder it would now be from the new entity that owns the freehold and that you and your neighbours now control
• Once you jointly own the freehold, you can collectively set ground rents, shop around for the best insurance and generally be in control of your own destiny. Once you own the freehold you can extend your lease so it is a long lease with the only cost being legal fees.

Am I eligible to buy the freehold?

Generally, the eligibility requirements for a group of leaseholders to buy the freehold (collective enfranchisement)are as follows:

• the building needs to contain at least two flats
• no more than 25 per cent of the freehold building can be used for non-residential purposes, e.g. shops or offices
• at least two-thirds of the flats must be owned by leaseholders who own long leases
• at least half of the total number of flats in the building must be owned by leaseholders who want to buy a share of the freehold – so you don’t need to have all owners on board, but you do need to have at least half of the flat-owners involved.

Should I buy the freehold?

Buying the freehold is worth looking into if:

• You have a difficult relationship with your freeholder or would you prefer not to have to deal with a separate, non-resident freeholder
• You are happy to come together with neighbours and work through the process of buying a share of the freehold and managing everything that needs to be done together
• You feel you have been paying over the odds for service charges, ground rent etc
• Your lease has around 85 years or less remaining. At 80 years it gets much more expensive to extend the lease and/or buy the freehold, making your home much less valuable and more difficult to sell. Buying the freehold can add value to a lease, particularly to one under or close to 80 years
• You and the other leaseholders have the money needed to buy the freehold. You will need to have a freehold valuation done to get an idea of the freehold purchase price, and add to that your own and the freeholder’s legal and valuation fees

Buying the freehold (collective enfranchisement) to your building can bring a whole host of benefits to you and your neighbours, but managing a building is a complex task, as there are many legal matters and regulations that the building must comply with. Although you’ve got control over how much service charge you pay, the insurance and the benefit of it adding value to your home, with great power comes great responsibility. The new freeholders need to set up a freehold company, do the accounts, arrange insurance, and keep the building well maintained, so it does come with a lot of responsibility!

Here at Blocsphere we work with many freehold companies, who have approached us to help take some of the responsibility off them. The role of a Managing Agent requires knowledge of the landlord and tenant law, building construction, health and safety regulations, accounting and much more! If you don’t have knowledge in these areas, without a Managing Agent it can be a very difficult and complex task managing the building, specially if it is a large block. Blocsphere are able to tailor our services to meet individual resident needs and facilitating a customer-centric ethos and is on hand to guide you through the “legal minefield” that is better known as property management.