Partner Katja Wigham, in our Commercial Property team, provides summarises collective enfranchisement, right to manage and individual lease extensions.
Qualifying tenants of flats within a block, who meet certain criteria, could qualify for a number of rights, including collective enfranchisement, the right to collectively manage the building and the individual right to a lease extension.
What is Collective Enfranchisement?
Collective enfranchisement is a process where qualifying tenants who choose to participate are able to acquire the freehold of a building (for example, a block of flats) in return for the payment of a premium to the landlord.
The advantage being that participating tenants can eliminate the ground rent payable under their existing leases and grant themselves new replacement 999 year leases. This also allows tenants to remedy any possible defects or issues within the existing leases. There is no residence requirement or minimum ownership requirement. It also allows participating tenants the opportunity to extract further value from the flat owners who chose not to participate, by charging a premium to extend their leases at a later date.
The disadvantage of collective enfranchisement is that it the process depends on the co-operation of other flat owners, and it can be a comparatively expensive process (although costs can of course be shared between the participating flat owners).
The Right to Manage Explained
Another right that may be available to qualifying tenants within a building is taking control by collectively asserting the right to manage the building.
The advantage is that this is normally cheaper than collective enfranchisement, and also usually quicker. There is no need for a formal valuation, and there are limited grounds on which the landlord can object.
The disadvantage with the collective right to manage is that the legislation does not adequately deal with all of the situations that can arise, particularly where there is more than one building. The management functions can be onerous, and it can be difficult to obtain the required information from the landlord or the managing agent involved.
Individual Lease Extensions Explained
Tenants who qualify for an individual lease can act independently of the other flat owners within the block.
The advantage is that it is usually a relatively straightforward process. This right can be exercised where the ability to collectively enfranchise may not be available or where an insufficient number of flat owners wish to participate. Qualifying tenants can take the opportunity of reducing their ground rent to a peppercorn rent provided they follow the statutory procedure.
The disadvantage of individual lease extensions is that the lease extension will not necessarily address longer term management issues within the building. The ability to update and improve the lease terms and to remedy any defects is also fairly limited.
For further information or legal advice, please contact law@blandy.co.uk or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.
