How to buy a freehold of the leasehold property

If you’re a leaseholder with the desire to own the freehold of your flat, you’re on a path to gaining more control, potentially reducing costs and enhancing the term of your lease. In this article, we will explore how to buy the freehold of your flat and the benefits it offers over only owning the leasehold interest in your property.

• Understanding the Benefits of Freehold
  • Assessing the Situation
  • Understanding Your Rights
  • The Acquisition Process
• Disenfranchisement and Right to Manage (RTM)
• Your Path to Freehold Ownership

Understanding the Benefits of Freehold

Before delving into the acquisition process, it’s essential to understand some of the key benefits in owning the freehold interest. When you own the freehold of your flat, you:

1. Gain Control. You have a say in the management and maintenance of your building, giving you more control over service charges and property decisions.
2. Extend Your Lease. In most cases, you can extend your lease at no extra cost, providing long-term security for your property.
3. Eliminate Ground Rent. Owning the freehold means you can vary your lease so you won’t have to pay any ground rent, saving you money over time.

If you decide to buy the freehold of your leasehold flat there are several steps to consider:

Step 1: Assessing the Situation

Before proceeding, evaluate the terms of your lease. When your lease falls below 80 years or if you’re facing exorbitant ground rent, it’s an ideal time to consider buying the freehold.

This is because both these considerations will come at a high financial cost to you if you want to extend your lease or vary the lease to remove the ground rent.

Step 2: Understanding Your Rights

As a leaseholder, you have several options to acquire the freehold:

Right of First Refusal (ROFR)

• Offered Opportunity. If the freeholder intends to sell the freehold, they must first offer it to existing flat owners through Section 5 Notices.
• Majority Rule. To accept the offer, more than 50% of flat owners in the building must agree.
• Legal Obligation. Failing to provide ROFR is a criminal offence.

Collective Enfranchisement

• Flat Owner Unity. Flat owners can join forces to compel the freeholder to sell the freehold, even if the freeholder does not wish to sell.
• Ownership Threshold. To form an RTM you need 50% of the qualifying leaseholders to participate in the RTM.
• Qualifying Leaseholder. To be a qualifying leaseholder, you need to own a leasehold that was originally granted for an original term of more than 21 years. BUT you cannot own more than two flats in the building.
• Valuation. A valuation will be carried out to determine the value of the freehold which will take things such as the term of each lease into consideration.

Step 3: The Acquisition Process

Once you’ve decided to pursue freehold ownership, follow these steps:

Step 3.1

1. Assess Eligibility. Determine whether your building qualifies for Collective Enfranchisement based on the number of flat owners and meeting other criteria.
2. Consult Edmans & Co. We can guide you through the process and ensure all matters have been considered and taken care of so the process has been legally followed.
3. Form a Company. Often, flat owners form a company to collectively buy the freehold, this way, membership to the company can be distributed fairly between the leaseholder and when selling your leasehold flat, it makes it easier for your buyer to become a member of the company that owns the freehold.
4. Notice Inviting Participation. At this point, the company will need to serve a formal notice inviting other leaseholder to join the enfranchisement.
5. Participation Agreement. This agreement will form the provisions of the company, such as agreements on costs, decision making, votes and contributions to the buying of the freehold. This can also allow non-contributors to have limited benefits in the company without the risk of losing a qualifying leaseholder.

Step 3.2

1. Due Diligence. This will involve reviewing the freehold title and accounts currently available.
2. Valuation. An independent valuation expert assesses the property’s value, which is used to determine the purchase price. It is important to note that a landlord can dispute this and does not need to agree with the valuation. However, there is many ways of coming to an agreement and as a last resort the property tribunal can determine how this is resolved.
3. Serve Initial Notice. A formal notice expressing your intention to buy the freehold is served to the freeholder.
4. Potential Counter Notice. The freeholder can serve a counter notice within 2 months of the initial notice. Any counter notice can likely be resolved either through arbitration or via the property tribunal. The one main exception here is where the freeholder can prove they have genuine plans to redevelop the building, this will then prevent the enfranchisement succeeding.

9. Negotiate Terms. Negotiate the terms of the freehold purchase with the freeholder, whilst the initial notice will set your terms, the freeholder will likely want to negotiate some of these terms.
10. Legal Transfer. Once agreed upon, the legal transfer of the freehold takes place, and the company formed by the qualifying leaseholder becomes the freeholder.

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Disenfranchisement and Right to Manage (RTM)

It is important to keep in mind that in some cases the acquisition process can be less straightforward and will require further support by us. One of these issues is disenfranchisement which occurs when freeholders sell the freehold without adhering to ROFR, leading to potential legal action by leaseholders.

On the other hand, the leaseholders may not want to buy the freehold but simply take control of the management of the building. This is where an RTM can be formed, providing an alternative route to exercising control. Edmans & Co can also assist in the formation of an RTM and the exercising of this right.

Your Path to Freehold Ownership

Owning the freehold of your flat offers numerous advantages, including control, lease extension, and cost savings. At Edmans&Co, our experienced property solicitors are here to provide you with straightforward and timely guidance on acquiring the freehold for your leasehold property, along with comprehensive support for any other property matters you may encounter.

Call us on 02074393000, or fill out the form at the top of this page, for a free initial chat.