Flat owners are entitled to collectively purchase their own freehold; this is called enfranchisement. Buying your own freehold eliminates the need for a lease extension. For those flat owners with less than 85 years remaining on their lease this is very important, however, there are a number of other advantages to consider:
Buying your freehold not only increases the value of your flat but means you can exercise real control over your property. After enfranchising, for instance, the choice of how best to insure, manage and maintain your property rests in your own hands. A freehold purchase could also in some cases allow flat owners to enjoy new rights over roof spaces, half landings or external areas and eliminates landlord disputes.
If you are interested in enfranchising your property we can offer you clear and professional specialist advice contact our leasehold advice department for a free preliminary consultation:
There are two important elements:
To protect the value of your flat
When you decide to sell your flat, any lease approaching 80 years or below will create difficulties on sale (see faq’s on extending your lease).
As leases reduce in length it becomes much more expensive to purchase the freehold.
Therefore buying your freehold (if your lease is around 80 years or less) will protect the value of your flat and improve saleability.
To control the management of your building
Owning your freehold means you have a complete control on costs -from redecoration or repairs to the building to the insurance premium to managing agents charges. Significant immediate savings should be derived upon the purchase of your freehold.
You need at least 50% of the flat owners to participate although the more owners who participate the better not only for the successful management of the building in the future but also because it will reduce the costs for everyone.
A number of factors including the lease length and the market value of the property will affect the price payable. There is no rule of thumb within leasehold valuation. A professional survey and full valuation are required in each case to establish the likely price.
It should be remembered firstly that the longer you leave the situation the more expensive it will become and that all of your expenditure will be recovered in the increase in value of your flat, and the cost saving on future service charges.
The first thing you will need is a surveyors’ valuation report. We can help you with this and we can usually provide you with a full report within ten days of inspecting your property.
After you have received your valuation report and made an offer to your freeholder we can advise you how best to negotiate the matter. We will always attempt to settle the matter through informal agreement directly with your freeholder or your freeholder’s surveyor.
If your freeholder will not agree to a reasonable level, we will advise you to serve a section 13 notice. The section 13 notice represents your formal offer and is the first stage of the legal process for enfranchisement. Once a notice is served both sides must adhere to a strict timetable and to rules concerning costs. Austin Gray can recommend a specialist solicitor for any necessary legal services (unless you wish to use your own).
Your freeholder is entitled to have the freehold formally valued at this point and he will serve a counter notice (including his counter offer, often at a substantially higher level). You are liable for the freeholder’s ‘reasonable costs’ up to this point.
After the freeholder serves his counter notice there is a period of two months in which the surveyors from each side will negotiate the price. Many enfranchisements are settled at this point, however, if an agreement cannot be reached the price will be settled by a leasehold valuation tribunal.
Once the price is settled your solicitor will form a freehold company and the participants will become equal shareholder’s – this company will then purchase the freehold.
Our valuation fees are quoted for individually and are dependent on the circumstances please call our professional department on 01273 20 1980 for a quote.
If it becomess necessary to follow the statutory process there are further fee implications which you will need to budget for. As well as your own surveyor’s valuation costs your solicitor will charge you for serving a section 13 notice. You will also be responsible for your freeholder’s valuation and legal fees. Lastly there will be a fee for any formal negotiations undertaken by your surveyor. We can provide you with a quote for our fees on request and we can also give you a guide of what to expect in legal fees.
You should remember that all fees are shared between the participating flat owners therefore the greater the number of flat owners participating the lower the fees will be for each person.
There are three main elements to the valuation. The first two elements together represent the market value of the freehold. The third element (marriage value) represents the freeholder’s share of the profit derived from the improved value of the property after enfranchisement.
Ground Rent
After the enfranchisement the freeholder will no longer collect ground rent on the flats and needs to be compensated for this loss. All the ground rents over the course of the term are capitalised using a widely accepted yield.
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Reversion
At the end of the lease term the building will, in theory, revert to the freeholder. As the end of the lease gets closer the freeholder’s reversionary interest becomes more valuable (at the same time your interest in the flats starts to diminish).
The value to the freeholder of this element rises steeply as leases fall below 80 years. When you enfranchise the freeholder loses his reversionary interest and he must be compensated for this loss of value.
The level of reversion is worked out using a yield known as a deferment rate. This rate has been set by land’s tribunal at the case commonly known as ‘Sportelli’. This decision is contentious. There are occasional exceptions to the yield set by this Land’s Tribunal and you should take advice from your surveyor to ensure the rate applies to your property.
Marriage Value
The value of your flat reduces as your lease term diminishes. Enfranchising increases the value bringing it back up to full market value. This increase in value is called ‘marriage value’. The freeholder is entitled to a 50% share of any potential ‘profit’ made as a result of enfranchising.
There are a number of factors affecting the valuation which will need to be assessed at the property including the market value of the property, lessees improvements, layout changes, valuable common parts, development potential etc. The terms of the leases will also affect the overall valuation. These factors vary from case to case and will be covered in your valuation report.
After receiving your valuation report an enfranchisement can be agreed very quickly by informal negotiation. If the freeholder accepts a reasonable level the sale can be conveyed in a couple of months. It is usual, however, for the process to take longer than this.
Unfortunately there is often a significant discrepancy between the freeholders opinion of value and that of the flat owners’ surveyor. In this case you will need to serve your notice. The freeholder has two months from the time you serve your notice to have the freehold valued by another surveyor and to serve their counter notice. Once the counter notice is served there is a further two months of formal negotiations. The price is in most cases settled at this point between the surveyors –you should expect to pay additional fees for these negotiations. In the majority of cases the price is settled at this point. The whole process should take less than six months.
If the price cannot be settled between the surveyors it will be settled at tribunal. Attending tribunal has significant fee implications and can be time consuming, it is, however, relatively rare to resort to tribunal.
