Collective Enfranchisement: Initial Leaseholder Notice and Landlord Counter Notice
The requirements of the Initial Notice for collective enfranchisement are set out in the 1993 Act but the rules in terms of the lease requirements have been extended under s131 of the Commonhold and Leasehold Reform Act 2002 Act to include:
- A lease of a term of years absolute in excess of 21 years – the present unexpired term is irrelevant because qualification is governed by the original term of the lease when it was first granted;
- A shorter lease containing a clause providing a right of perpetual renewal;
A lease terminable on death or marriage or an unknown date (including the so-called ‘Prince of Wales’ clauses);
- The continuation of a long lease under the Local Government Housing Act 1989 following the expiry of the original term;
- A shared ownership lease where the leaseholder’s share is 100%.
- s126 now fixes the valuation date for collective enfranchisement of flats at the date the initial notice is served;
- Where leases are below 80 years, under s135, the marriage value is now split 50/50. This is because the potential ‘profit’ only arose from the freeholder’s obligation to sell, the legislation now requires that it be shared equally between the parties.
- If the lease is over 80 years then under s136, marriage value is disregarded.
INITIAL LEASEHOLD NOTICE
To start the process, leaseholders serve the Initial Notice (requirements of which are set out in s13(3) of the Act) on the landlord via their solicitor that includes the offer for the freehold based on a professional valuation. This used to require the signature (in person) of all participants because case-law originally determined that the actual leaseholder must sign – there was no provision for substitution by persons acting for the leaseholder under appointment of power of attorney.
However, the Leasehold (Reform) Amendment Act 2014 removes the requirement that notices under 99(5)(a) of the Act (specifically under s13 or s42 (for lease extensions) of that Act to be signed by tenants or tenant personally) by providing that that they may now be signed by (or on behalf of) the tenant.
Note: More information on this Act can be read in the article entitled ‘The Leasehold (Reform) Amendment Act 2014 Q&A’ written for Leasehold Life by guest contributor Mark Chick, Director and Committee Member of ALEP (Association of Leasehold Enfranchisement Practitioners) and his technical update on his Leasehold Reform News web site.
The Notice must also include the following:
- Details of the property to be acquired, including a plan – this must include details of any additional land the leaseholders wish and have a right to acquire, for example garages and any proposed rights of way over land not acquired;
- A statement showing that the premises qualify for the right of collective enfranchisement on the relevant date;
- Details of any leasehold interest to be acquired, i.e. an intervening head lease and any flats subject to mandatory leaseback to the freeholder;
- The price proposed, including a price for any intermediate interests;
- The full names and addresses of all the qualifying leaseholders in the property and sufficient details of their leases to show that they are long leaseholders – this will require details of the date the lease was entered into, the date of commencement and the term.
- The date by which the freeholder is to provide the Counter-Notice (at least two months after service of the Initial Notice is given).The Initial Notice will also include the name of the Nominee Purchaser who must be decided upon at an early stage because whoever it is will conduct the later states of the process and on completion will be the new landlord and responsible for the management of the building. The Nominee Purchaser can be a person, i.e. a leaseholder or a corporate person, a buy-to-let (or other) absentee owner, a trust, companies that own flats or, and this is the most common choice, a company formed by the leaseholders for the purpose, a Resident Management Company (RMC).
There are no controls or qualifications in the legislation governing selection of nominee purchasers and the leaseholders are free to choose whoever or whatever agency they wish, by whatever means of selection. Where the freehold is severed (owned by different parties) then the participating leaseholders must decide which of the freeholders is to be considered as the reversioner for the purpose of receiving the Notice. Generally the major freeholder (the freeholder with the greater share of the freehold) should be chosen.
Copies of the Notice must be served on all other freeholders.
Note: It’s important to remember that the other freeholders have the right to go to court for an order to change the reversioner to another of their number with possible cost implications to the leaseholders.
Inviting Other Companies to Participate
There is also the ability to invite another company to participate: some lessees have selected a housing association with management experience but it must be borne in mind throughout the selection process that the nominee purchaser is the person or body that the leaseholders are putting forward to be their new landlord and responsible for the management of the building.
The participating leaseholders are jointly and individually liable for the landlords’ costs as from the date he receives the Notice so it must be complete and contain no inaccuracies. Although these may be corrected by applications to the county court, it is an area of expense to be avoided.
An incomplete Notice can be rejected as invalid.
Evidence of Ownership
The landlord has the right to require evidence of ownership from participating tenants within 21 days from receipt of the Intial Notice. He also has the right to inspect/value the flats and can demand access to each flat/leasehold subject to 10 days notice being given to the occupier. He must also give details of leaseback(s) required for flats or commercial property owned by him (month 1)
A response to the landlords requests are required within 21 days or the the initial notice is regarded as withdrawn and cannot be re-served for another 12 months.
LANDLORD COUNTER NOTICE
The landlord now has a maximum of 2 months to serve a Counter Notice, (month 3). Failure to do so means that the nominee purchaser must apply to court within 6 months and request a Vesting Order, otherwise the Initial Notice is deemed withdrawn. The counter-notice must contain one or more of the following statements:
- Accepting the right to enfranchisement;
- Denying the right and giving the reasons why:
- Claiming an intention to redevelop (but only if two thirds of all long leases have less than 5 years to run);
- Which, if any, of the proposals in the Initial Notice are accepted, and specifying counter-proposals for those which are not;
- Whether the nominee purchaser is required to acquire additional property which would cease to be of use to him;
- Any other provisions which need to be dealt with as part of the conveyancing process.
The next stage of the process should agreement not be reached is that of a hearing and determination by the First Tier Tribunal which can be read here.