Enfranchisement

The Right to Manage

Tenants can force the transfer of the Landlord's management functions to a special "right to manage" company set up by them ("the RTM"). The Landlord's consent is not required. There is no need for the Tenants to prove mismanagement by the Landlord.

The building must meet certain conditions

• The building must be self-contained (or if part of another building, be capable of being redeveloped independently);

• It must include at least two flats;

• At least two-thirds of the flats must be let to 'qualifying tenants' i.e. someone whose lease was originally granted for an original term of more than 21 years.

• It can be part commercial but the non-residential part must not exceed 25% of the total.

The required minimum number of qualifying tenants must be equal to at least half the total number of flats in the building.

The right is exercised by the service of a formal notice on the Landlord. After a set period, the management transfers to the RTM. Once the right to manage has been acquired, the Landlord is also entitled to membership of the company.

Clearly, the Tenants or a number of them will have to undertake the responsibilities of operating the company. The future management of the Property needs to be discussed beforehand. You do not want to get to the situation where some Tenants have the same sort of complaints against the RTM as they had against the Landlord. In larger blocks, it might be wise to retain professional managing agents

Enfranchisement

The tenants must form a Right to Enfranchise Company (" RTE") to buy the freehold and any intervening interest, like a headlease. Before they do this, however, and embark on the formal procedure for Enfranchisement they will need to:

1. Put together a fund to finance the costs of investigating the situation
2. Gather information
3. Check that the Building and the Tenants qualify under the Act
4. Choose a Valuer to advise on a reasonable purchase price
5. Set up the RTE
6. Serve a Participation Notice
7. Serve the Initial Notice

Put together a fund to finance the costs of investigating the situation

At the outset, it may that only a few of the tenants want to proceed and they will want to try to persuade as many of the others to join in - the more that do, the cheaper the costs and the contribution to the purchase price

The eventual cost to each Tenant will be the share not only of the cost of the freehold but also of both the Landlord's and the Tenants' legal and valuation costs.

All should be asked to contribute towards a "fighting fund." Not only will this pay for the initial investigations but also it is amazing how many people are only interested up to the point where they have to write a cheque!

Where there are a large number of participating Tenants, they should enter into a formal participation agreement amongst themselves to govern joint actions prior to and during the procedure - rights of voting, the negotiation, and agreement of terms and financial contributions. Difficulties or delays in reaching decisions could endanger the application

Where there are only a few tenants or the amounts involved are small, everyone could just pay their share of the anticipated purchase price and costs into a fund by way of indicating their commitment - on the basis it will be only be returned if the application does not go ahead

Gather information

As a minimum, you will need to obtain the following information: -

1. The identity of the freeholder(s) - a person, or company name and address
2. Details of any intervening or head leases and the identity and address of the relevant lessees
3. The full names and addresses of all the Tenants of the building and details of their leases
4. Details of any flat in the control of the Landlord and let on periodic tenancies.

We can prepare a blue print for the whole transaction, so that the procedure can just be followed through.

Check that the Building and the Tenants qualify under the Act

1. The building must be at least 75% residential
2. Two thirds of the flats need to be let to qualifying tenants
3. At least half of the Tenants overall need to participate (where there are only two flats in the building, both Tenants must participate)

Choose a Valuer

 

The Valuer will...

1. Provide "best and worst" valuation advice
2. Advise on the amount of the offer to be made in the Initial Notice
3. Respond to the Landlord's Counter-Notice
4. Negotiate the purchase price - valuation is not an exact science.

You may also ask him to...

1. Advise on structural and repair condition and implications for future maintenance costs/service charges
2. Advise on future management
   

Set up the RTE

1. The RTE Company must be a private company limited by guarantee
2. All qualifying Tenants of the building are entitled to be members of the RTE Company and may become members either on initial incorporation of the Company or later by means of service of a "Participation notice" on the Company.

Serve a Participation Notice

The RTE Company must serve a notice on all qualifying Tenants who are not already members of the Company inviting them to take part.

Serve the Initial Notice

This "kicks off" the formal procedure. There are time limits for various stages. The application can fail because these time limits are not met. The tenants are responsible for the Landlord's costs from this point on whether or not the application proceeds.

Related topics you may find useful:

Buying a London Property
Landlord/Tenant disputes
Property- Residential
Service Charges

Call Michael Breeze on 07900 195 195 or call 0845 270 2511 to set up an appointment