A Guide To Freehold Acquisition For Leaseholders
Freehold acquisition allows leaseholders to gain full ownership of their building and land, offering greater control over property management, costs, and long-term value.
This guide explains the process, benefits, and responsibilities involved in collective freehold acquisition for leaseholders, helping leaseholders make informed decisions about their property.
What is Freehold Acquisition For Leaseholders?
Collective freehold acquisition for leaseholders refers to the process in which leaseholders (typically flat owners) collectively purchase the freehold of their building. Leaseholders who own flats generally only own the property for a set number of years (e.g., 99 or 125 years). By acquiring the freehold, they own the land and the building outright, granting them more control over their property.
What is a share of a freehold?
A “share of the freehold” means that leaseholders have collectively bought the freehold of their property (e.g., a block of flats), and each flat owner has a stake in the freehold, often through an enfranchisement structure. The flat owners continue to hold their leasehold title but also become part of the ownership of the building itself, enabling them to have more control over management and costs.
What are qualifying tenants?
Qualifying tenants are leaseholders who have the right to participate in the freehold acquisition process. A qualifying tenant must generally hold a long lease (usually over 21 years). Typically, at least 50% of the qualifying tenants in a building must participate to proceed with freehold acquisition.
For the building to qualify, it must have at least two flats, at least two-thirds of the flats must be owned by qualifying leaseholders, and no more than 25% of the internal floor area of the building can be held under a business or commercial lease.
In line with the resident landlord exemption, there is no right of collective enfranchisement if:
- The building is a conversion into four or fewer flats and
- Not a purpose-built block; and
- The same person has owned the freehold since before the conversion of the building into flats; and
- An adult member of their family has lived there for the past 12 months.
Who can help?
- Managing agents or freehold enfranchisement companies: These professionals can assist with property management and coordinating the entire freehold purchase process.
- Solicitors: Specialist property solicitors with experience in leasehold enfranchisement can guide leaseholders through the legal process.
- Surveyors: A chartered surveyor can help determine the value of the freehold and any costs associated with the acquisition.
Freehold Acquisition Basics For Leaseholders
Freehold acquisition allows leaseholders to take ownership of the land and building their flats are part of. By purchasing the freehold, leaseholders can gain greater control over their property, eliminate ground rent, and improve the long-term value of their homes. However, the process comes with both benefits and responsibilities, which are important to consider before moving forward.
Freehold acquisition benefits
- Control over maintenance and management: Leaseholders gain control over how their building is managed, including decisions on repairs, maintenance, and insurance.
- No ground rent: As freeholders, leaseholders no longer need to pay ground rent to an external landlord.
- Lease extension: Leaseholders can often extend leases with no additional premium or at a nominal cost, increasing the value of their flats.
- Stability in service charges: Freeholders can directly control the service charges and management fees, ensuring greater transparency.
Freehold acquisition responsibilities
Freehold acquisition can offer significant long-term benefits for participating leaseholders but also requires a commitment to property management and shared responsibility among leaseholders.
- Building management: The leaseholders are now responsible for the maintenance and management of the building, including major works, insurance, and general upkeep.
- Financial commitment: Freeholders must contribute to the ongoing costs of maintaining the building, including potential unexpected repair work.
- Legal and administrative work: Freeholders may need to set up a limited company to manage the freehold, handle financial accounts, and ensure compliance with property laws.
- Dispute resolution: As freeholders, leaseholders may need to handle disputes between flat owners or other legal matters related to building management.
How Can Leaseholders Acquire Their Freehold?
Leaseholders who want more control over their property have several options to acquire the freehold of their building. Whether they are responding to a freeholder’s sale or initiating the process themselves, there are legal routes to follow. Below are three common methods leaseholders can use to acquire their freehold.
Right of First Refusal
The Right of First Refusal allows leaseholders the first opportunity to buy the freehold when the freeholder (landlord) decides to sell it. This right is granted under the Landlord and Tenant Act 1987 and applies mainly to blocks of flats. This process should be started by the freeholder with a notice once they decide to sell the property.
Form a Collective Enfranchisement
Under the Leasehold Reform, Housing and Urban Development Act 1993, leaseholders can force the sale of the freehold, even if the freeholder is not selling. This process is known as collective enfranchisement and can be started by the leaseholders provided certain conditions are met.
Contact a Freehold Purchase Agent
For leaseholders looking for professional help to simplify the process, a Freehold Purchase Agent can assist. These agents specialise in helping leaseholders through collective enfranchisement and freehold purchases. Here’s how we can help:
- Valuation: They will assess the value of the freehold and advise on the likely purchase price.
- Coordination: They will organise the collective enfranchisement process, including legal and administrative steps.
- Negotiation: Freehold purchase agents can act on behalf of the leaseholders to negotiate with the freeholder.
- Project Management: Some agents provide end-to-end services, ensuring the process is handled smoothly, from start to finish.
Collective Freehold Acquisition vs Forming a Right To Manage (RTM) Company
Both Collective Freehold Acquisition and Right to Manage (RTM) are legal processes in the UK that allow leaseholders to take control over the management of their building. However, they differ significantly in terms of ownership, responsibilities, and the scope of control.
The Right to Manage allows leaseholders to take over the management of the building without buying the freehold. Leaseholders form an RTM company that handles the building’s day-to-day management, but leaseholders do not own the building or the land. The freeholder retains ownership, but the RTM company takes over responsibility for management.
Which is best?
- Collective Freehold Acquisition is ideal if leaseholders want full ownership and control over their property, including the ability to extend leases and eliminate ground rent. It’s a long-term investment but requires significant financial and legal commitment.
- Right to Manage (RTM) is better for leaseholders who want more control over the day-to-day management of their building without the financial burden of purchasing the freehold. It’s a simpler and more affordable process but doesn’t offer the benefits of ownership.
Both options allow leaseholders to improve the management of their building, but the choice between them depends on the leaseholders’ financial capacity, long-term goals, and the level of control they want to have over their property.
Looking For Support Overseeing Freehold Acquisition?
If you’re considering collective freehold acquisition, The Freehold Collective is here to support you through the entire process. We help leaseholders navigate every stage, from valuation to completion.