Partner Katja Wigham, in our Commercial Property team, explains various rights which tenants of flats may qualify for.
Provided they meet certain criteria, tenants of flats within a block may qualify for various rights, including collective enfranchisement, the right to collectively manage the building and the right to request individual lease extensions.
Collective enfranchisement is a process where qualifying tenants who choose to participate can acquire the freehold in return for the payment of a premium to the landlord.
The advantage is that participating tenants can take the opportunity of eliminating the ground rent under the existing leases and granting themselves new replacement 999 year leases. This also allows tenants to remedy any possible defects there may be in 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 that chose not to participate, by charging a premium to extend their leases at a later date.
The disadvantage with collective enfranchisement is that it requires the co-operation of other flat owners, and can be a comparatively expensive process (although costs can be shared between the participating flat owners).
Right to Manage
Another right potentially available to qualifying tenants within the building is to take control by collectively asserting the right to manage the building.
The advantage is this is usually cheaper than collective enfranchisement, and is normally 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 situations, particularly in a situation 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.
Individual Lease Extensions
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 comparatively straightforward process. The 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, provided they follow the statutory procedure.
The disadvantage of individual lease extensions is that the lease extension will not necessarily address long term management issues within the building. The ability to update and modernise the lease and to remedy any defects is also fairly limited.
For further information or legal advice, please contact email@example.com 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.