Collective Enfranchisement: Initial Leaseholder Notice and Landlord Counter 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).
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.
LANDLORD COUNTER NOTICE
The landlord has the right to require evidence of ownership from participating tenants within 21 days from receipt of the Initial 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.
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.
The landlord must serve his Counter-Notice by the date specified in the Initial Notice where he must:
- Agree leaseholders have the right to the freehold and accept the terms (or propose alternative terms); or
- Disagree leaseholders have the right and give reasons why (which will then need to be determined by the county court); or
- Neither admit or deny entitlement, but state that an application is to be made to court for an order that the right to enfranchise cannot be exercised on the grounds the freeholder intends to redevelop the whole or a substantial part of the premises.