‘Enfranchisement’ is where flat owners in an eligible building join together to force the freeholder (landlord) to sell to them the freehold of their building.
Flat owners benefit from this with increased control over their property & ground rent and the ability to extend their own leases.
But what about landlords? Does enfranchisement really force you to sell? And can you negotiate a price?
In this article, Leasehold Property Expert Niki Adkins answers those questions and more…
What is a Section 13 notice?
In leasehold property scenario, a Section 13 notice is served on a freeholder by a group of leaseholders who are forcibly purchasing the freehold.
The notice officially starts the enfranchisement process and gives a deadline by which you will need to respond.
Related: What is collective enfranchisement and how does it work
Can I be forced to sell my freehold?
If the building you own meets the necessary criteria set in the legislation (see below) and you receive a valid Section 13 Notice, then yes, you can be forced to sell.
Under legislation applicable at the time of publishing this article, the criteria is as follows:
- There must be at least two flats in the building
- At least two-thirds of the flats in the building must be let to ‘qualifying leaseholders’ (flats with long leases at low ground rents)
- No more than 25% of the total floor area must be used for non-residential purposes
- At least 50% of the number of qualifying flats must participate (e.g. in a block of 10 flats, 5 or more must participate)
Related: Can a freeholder refuse to extend a lease?
Are freeholders obliged to sell to leaseholders?
If the building qualifies, and you receive a valid Section 13 Notice, you are legally obliged to sell to those leaseholders.
The only way you can sell to anyone other than the leaseholders (assuming you have not received a Section 13 Notice) is to serve Right of First Refusal Notices on the leaseholders.
The Right of First Refusal involves you offering the freehold to the leaseholder first, and if they do not accept, you can then sell to an unrelated third-party.
Related: Do I need to extend my lease if I own a share of the freehold?
How much can you sell a freehold for in enfranchisement?
As a general rule, the shorter the leases in the block, and the higher the ground rents, the higher the freehold’s value will be.
For a tailored estimate on how much your freehold property is likely to fetch, you are best to get in touch with a specialist valuer.
We can put you in touch, if you’d prefer. You can call us on 01202 499255 and we’d be happy to name a suggested valuer.
Can I negotiate my freehold price?
In their Section 13 Notice, the leaseholders will make an offer for the freehold.
In response, you are able to serve a formal Counter Notice where you can set out your counter-offer. Again, a specialist valuer will be able to assist you in calculating the appropriate value of your freehold so you know how much to counter-offer.
Drafting a suitable Counter Notice can be complex. At Frettens, our bright Leasehold Property experts can assist you in drafting yours, ensuring that it is legally compliant, and your interests are well represented.
We can also assist in checking whether the property meets the criteria to enfranchise in the first place.
Related: How do I sell my freehold? A guide to the process involved
Who pays the legal costs in enfranchisement?
Under legislation applicable at the time of publishing this article, the leaseholders are automatically responsible for your reasonable legal and valuation fees incurred in an enfranchisement transaction.
For what is and isn’t deemed reasonable, you’re best to speak to a solicitor for specific, circumstantial advice.
However, the recently passed Leasehold Reform Act will see freeholders pay for their own cost in enfranchisement. Read more about the reforms here.
Specialist advice for freeholders in enfranchisement
Our bright Leasehold Property Team is one of the largest and most knowledgeable in the area.
They have years of experience in the field and are best placed to check whether a Section 13 Notice is valid and assist you in drafting and serving your counter-offer.
Call us on 01202 499255, or fill out the form at the top of this page, for a free initial chat.
Related
New reforms are set to come into force that effect you as freeholder.
Part of these reforms, the Leasehold Reform (Ground Rent) Act 2022, came into force a couple of years ago; effectively preventing landlords from charging ground rent in new leases.
The remaining reforms propose that millions of leaseholders will be given new rights to extend their leases or buy their freeholds at lower premiums. This is yet to come into force but could see royal assent in 2024-2025.
For updates on this, you can sign up to our leasehold property newsletter here.
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