No matter how thoroughly checks are carried out before the purchase of a Leasehold property, there remains the possibility that problems will still come up after purchase. The problems which come up most frequently normally relate to concerns about either (or both) the level of a Variable Service Charge or the management of the building or development.
The legal rights and remedies for Leaseholders of English and Welsh Leasehold properties in relation to these issues are summarised below under four headings.
- Legal restrictions on Service Charges: how much and for what a Landlord may charge, rules on billing of Service Charges, and what information should be provided.
- Ways for a Leaseholder to Resolve a Service Charge Dispute: complaints procedures, Ombudsman schemes, and the First Tier Tribunal.
- Ways for a Leaseholder to Resolve Problems with a Lease: Lease extensions, and the changing the Terms of a lease.
- Ways for a Leaseholder to Resolve Problems with the Management of the Building: Changing the manager, exercising the ‘Right to Manage’, and right to purchase the Freehold.
Legal Restrictions on Service Charges
There are a great many legal restrictions on residential Service Charges in England and Wales. These appear in individual leases, and they also appear in various Acts of Parliament and other secondary legislation.
Below is summary of the most important of these legal restrictions.
The Landlord is obliged to follows the terms of the Lease
A Lease is a contract between Landlord and Leaseholder, and both are legally obliged to follow the terms of the Lease.
There is no standard Lease type and they can vary significantly. Amongst the things which can change from Lease to Lease are:
1. What types of work or services a Landlord is permitted to charge for.
2. Which parts of a building or estate a Leaseholder is required to contribute towards.
3. When a Leaseholder should be billed and how they must pay those bills.
4. What proportion of the total cost of providing services and undertaking works to a building or estate should be charged to the individual Leaseholder.
5. Whether the accounts should be certified by an independent person, such as an accountant or auditor.
If a Landlord does not follow the Terms of the Lease in respect of the Service Charge, a Leaseholder may have legal grounds for challenging their liability to pay.
Leaseholders have Rights to Information
A common problem for Leaseholders is that their Landlord, or whoever else is managing the building and billing the Service Charge, refuses to provide information about the management of the building and the resulting Service Charge.
The Law provides 4 main routes for Leaseholders to get this information if the Landlord is unwilling to provide it:
1. Section 22 of the Landlord and Tenant Act 1985 states that a Leaseholder has a legal right to view supporting documentation at any time within 6 months of receiving a Service Charge bill. Supporting documentation means all invoices and other documents related to the Service Charge. Landlords are required to provide access within 1 month and failure to comply with this request is an offence under Section 25 of the Landlord and Tenant Act 1985 and can result in the Landlord being fined by a Magistrates Court.
2. Section 76 of the Leasehold Reform, Housing and Urban Development Act 1993 gives Leaseholders acting as a group the right to appoint a qualified accountant or surveyor to carry out an audit of the way a building or estate is managed to determine whether the Landlord is fulfilling their obligations under the Terms of the Leases, and whether the monies collected through the Service Charge are being spent effectively. The auditor is given legal rights under Section 79 to view documentation and inspect the building.
3. Section 84 of the Housing Act 1996 gives Recognised Tenants Associations the right to appoint a qualified surveyor to advise on any matter related to the Service Charge. The surveyor has legal rights to inspect both documents and inspect the building or development as necessary.
4. For Leaseholders of public bodies, such as local authorities, documentation about any aspect of the management of their building or Service Charge can requested by making a request under the Freedom of Information Act. To make a Freedom of Information Act request simply send a letter, fax or e-mail to your Landlord with your name, address, and a description of what information you are requesting under the Freedom of Information Act. Public sector bodies are required to respond within 20 days of receiving a request. Private sector landlords and Housing Associations have no legal obligations under the Freedom of Information Act.
Section 2o of the Landlord and Tenant Act 1985 states that a Landlord must consult Leaseholders before carrying out Qualifiying Work or entering into a Qualifying Long Term Agreement:
- Qualifying Works means a single set of works or services for which an individual Leaseholder will be liable to pay a Service Charge of £250 or more.
- Qualifying Long Term Agreement means an agreement with a contractor or service provider which last longer than 12 month and will result in a Leaseholder being charged a £100 or more per year.
The way in which the Landlord must consult Leaseholder changes depending on the arrangements under which contracts to provide works or services are tendered and carried out. The Service Charges (Consultation Requirements) (England) Regulations 2003 describes 5 different consultation processes. Landlords are required to pick the correct process for the works or services they intend to carry out or provide.
If a Landlord fails to consult, or follow the correct process as described in the Regulations, then the amount a Landlord can charge for Qualifying Works is capped at £250, and £100 per year for works and services provided through a Qualifying Long Term Agreement. To read more about this see Section 20 (Landlords must Consult) in our Leasehold Law Explained section.
However, if a Landlord has failed to consult Leaseholders correctly then they are entitled to apply to a First Tier Tribunal for a ‘Dispensation’ of the consultation requirements. If a Landlord’s application is successful, then the Tribunal has the power to excuse a Landlord of the responsibility to consult and the cap of £250 for Qualifying Works and £100 per year for Qualifying Long Term Agreements no longer applies.
The Law does not give precise guidance on which situation a First Tier Tribunal should and should not grant a Dispensation from the consultation requirements. However, in a recent Case The United Kingdom Supreme Court ruled that First Tier Tribunals should almost always grant a Dispensation to a Landlord who applies, so long as the amount of the Service Charge for the relevant works or services is reduced to compensate the Leaseholders for any loss they experience as a consequence of not being consulted in the correct way.
To read more about Dispensations of the consultation requirement see Section 20ZA (Dispensation of the Consultation Requirements) in our Leasehold Law Explained section.
Service Charges Must be Reasonable
Section 19 (1) (a) of the Landlord and Tenant Act 1985 states that a Service Charge is only payable to the extent that it is ‘reasonably incurred’. The Law doesn’t give a precise definition of what it means for a Service Charge to be ‘reasonably incurred’. However, recent Case Law has identified two parts to the concept of a cost being reasonably incurred:
1. The Landlord having good reasons for their actions in incurring the relevant expenditure.
2. The costs being typical for the location, type of development and type of work or service.
If a Leaseholder can demonstrate that part or of the cost is unreasonable then the Law says that the Service Charge should be amended to take out any costs which have not been reasonably incurred. To read more about this see Section 19 (1) (a) (Service Charges Must Be ‘Reasonably Incurred’) in our Leasehold Law Explained section.
The issue of Reasonableness is also relevant to the quality of the works or services. Section 19 (1) (b) of the Landlord and Tenant Act 1985 states that a Service Charge is only payable to the extent that the works or services involved were carried out to a ‘reasonable standard’. This means that Law states that deductions would be made to the amount of the Service Charge if works and services are not carried out to an acceptable standard.
The Law does not define what is meant by a ‘reasonable standard’. Whether works or services have been done to an acceptable standard depends on the facts of each individual case. If Landlord and Leaseholder disagree about what constitutes a ‘reasonable standard’ in a particular situation either Landlord or Leaseholder may apply to a First Tier Tribunal for a decision on the issue. To read more about this see Section 19 (1) (b) (Services or works must be of a ‘Reasonable Standard’) in our Leasehold Law explained section.
18 Month Rule
Section 20B of the Landlord and Tenant Act 1985 states that within 18 months of a cost being incurred a Landlord must either:
1. Bill Leaseholders for the cost
2. Send a Notice to Leaseholders informing them of the actual cost and that they will be required to pay it as a Service Charge in the future.
There are no exceptions to the 18 month rule. The law says that if a Landlord doesn’t bill a Leaseholder, or notify them of the actual cost, within the relevant 18 months then the Leaseholder can legally withhold payment for the relevant item or items of expenditure. For more information about this go to Section 20B (the ’18 month rule’) of our Leasehold Law explained section.
Ways for a Leaseholder to Resolve a Service Charge Dispute
There are a number of ways for a Leaseholder to raise a complaint about the Service Charge and resolve any disputes they have with their Landlord. These range from informal discussions between Leaseholder and Landlord through to legal binding decisions of a Tribunal or Court.
Landlord’s Complaints Procedure
Many Landlord’s or Managing Agents have a formal complaints procedure. Larger Landlords tend to have a complaints procedure with several stages, with a review of the complaint being conducted by different people at each stage.
It is very important that a Leaseholder with concerns about the Service Charge, or other aspect of the management of the property, first makes a complaint through their Landlord or Managing Agent. A letter or e-mail headed ‘Formal Complaint’ is generally sufficient to start whatever complaints procedure is in place.
Making a complaint to a Landlord or Managing Agent first makes sense. They are are the ones who can correct whatever problem is underlying the complaint, and they should also hold any information which is required to clear up a misunderstanding. Other organisations or helpful individuals, such as the Ombudsman or your local Councillor, may not agree to help Leaseholders until they have made a complaint through their Landlord first. Moreover, Courts and Tribunals may be more willing to award costs to Landlords if Leaseholders take legal action without first giving their Landlord the opportunity to respond.
There is nothing for a Leaseholder to lose, other than some time spent exchanging letters or e-mail, by using the Landlord or Managing Agent’s complaints procedure. If the Leaseholder remains dissatisfied following completion of all stages of the complaints procedure then they still have all the other options available to them for raising a dispute.
All Leaseholders can approach their Local Councillor or MP and ask for their assistance in resolving a Service Charge Dispute. Most often the Councillor or MP will write a letter to the Landlord asking questions and expressing concern. To find your Local Councillor click on Finding your Local Councillor and to find your MP click on Contact Your MP.
For Leaseholders of Local Authorities, Housing Associations and ALMOs this process has been formalised with Local Councillor, MPs and also Tenant Panels becoming ‘Designated Persons’ with responsibilities and powers to intervene to resolve disputes between a Landlord and Leaseholder. Tenants Panels are a relatively new creation with (as of 2014) only 80 or so Landlords who recognise Tenant Panels. Where they are recognised they have a formal role in the resolution of disputes. There is an up to date list of Tenant Panels available to download from the Housing Ombudsman Service website.
Statutory Redress Schemes
All social landlords and professional property managers are now required to belong to a Statutory Redress Scheme.
Section 51 of the Housing Act 1996 requires all registered social landlords to join the Housing Ombudsman Service. Registered social landlords are landlords which have received public funding or manage property funded by public money and include local authorities, housing associations and housing action trusts.
The Housing Ombudsman Service will consider complaints from Leaseholders of registered social landlords after they have been through their landlord’s own complaints procedure. Complaints can either be made through a ‘designated’ person which means a local MP, Councillor or Tenant Panel, or they can be made directly no sooner than 8 weeks after completing the landlord’s internal complaints procedure.
The Housing Ombudsman Service will not consider complaints which directly concern the amount of the Service Charge as this is legal issue which must be determined by a Tribunal or a Court. However, the Housing Ombudsman Service will consider issues related to the Service Charge such as concerns about the provision of information, delays in billing and administration charges.
The Housing Ombudsman Service can make a range of orders, with which member landlords are expected to comply:
- Order to apologise
- Order to pay compensation
- Order to perform a duty or fulfil an obligation
- Order to stop work
From the 1st October 2014 all other professional property managers are also required to join one of the three Government approved Redress Schemes:
This requirement generally only applies to persons or organisations providing management services on a professional basis. It does not necessarily apply to Freeholders who are undertaking management of the building or development which they own. For a full description of who this applies to see The Redress Schemes for Lettings Agency Work and Property Management Work (Requirement to Belong to a Scheme etc) (England) Order 2014.
Each of the three Redress Schemes functions in a similar way to the Housing Ombudsman Service: they will only consider complaints which have already been made through a Landlord’s complaints procedure, and they will not deal with issues concerning the level of the Service Charge.
First Tier Tribunal
A First Tier Tribunal is a legal body with authority to make decisions on a specific range of legal issues. There are several different Tribunal Services which each deal with different areas of law such as taxation and immigration. The relevant Tribunal for Service Charges, and other Leasehold and rent related, issues is the Property Chamber (Residential Property). The Property Chamber is split into 5 regional offices, and each offices deals with cases for properties located in that region:
- London Region (all London Boroughs)
- Northern Region (Cumbria, Durham, East Cheshire, Lancashire, Lincolnshire, Northumberland, North Yorkshire and West Cheshire)
- Midland Region (Birmingham, Derbyshire, Leicestershire, Nottinghamshire, Shropshire, Staffordshire, Warwickshire and Worcestershire)
- Eastern Region (Bedfordshire, Berkshire, Buckinghamshire, Cambridgeshire, Essex, Hertfordshire, Norfolk, Northamptonshire, Oxfordshire and Suffolk)
- Southern Region (Cornwall and the Isles of Scilly, Devon, Dorset, East Sussex, Gloucestershire, Hampshire, Kent, Somerset, Surrey, West Sussex and Wiltshire)
Both Landlords and Leaseholders can bring a case to a First Tier Tribunal making what is known as an ‘Application’. The Property Chamber will accept Applications to determine a wide range property related disputes including:
- Liability to pay a Service Charge
- Liability to pay an Administration Charge
- Disputes over the amount charged for Building Insurance
- Liability to pay a Landlord’s Legal Costs
- Appointment of a new Property Manager
- Varying a Lease
- Exercising the Right to Manage
- Extending the length of a Lease
- Leaseholders purchasing a Freehold interest in their building
To make an Application to a First Tier Tribunal an application form must be completed and, in most cases, a fee paid. These application forms can be downloaded on-line, for a full list of application forms follow this link to the justice.go.uk form finder. You need to select ‘Residential Property (First-tier Tribunal)’ as a drop down option under the Search box entitled ‘Available Types‘.
The fees charged by the First Tier Tribunal are relatively cheap, and for certain types of Application (such an Application by a Residents’ Association for formal recognition) there is no fee. Fees for Service Charge cases are on a sliding scale depending on the amount of the Service Charge in dispute. In 2014 the fee was £65 for Service Charges under £500 in value and £440 for Service Charges of £15,000 and over. In addition to this there is a Hearing Fee of £190 if the case progresses to a full hearing. For an up to date list of the fees charged follow this link.
Cases will be heard before a panel of upto 3 members, which generally consist of a lawyer, a surveyor and a ‘lay person’ (someone with no professional qualifications) although the number of panel members and their background may vary depending on the type of case and which regional office is conducting the hearing. Some cases may, with the agreement of the parties to the Application, be decided without a hearing with the Tribunal considering only the evidence that is sent to them.
The First Tier Tribunal is more informal than a Court and there is no requirement for either side to be represented by a legal professional, and many of the documents (such as a Statement of Case) can be prepared by someone without formal legal training as there are few rules on how those documents should be formatted and presented. However, Leaseholders particularly should be aware that using a legal representative will in some instances be necessary, or highly advantageous, if they wish to secure a successful outcome at the First Tribunal, in particluar:
1. Applications where a very strict process must be followed. A lawyer is normally needed for cases concerning Lease Extensions, Collective Enfranchisement and Right to Manage.
2. Disputes over interpretation of the Law or a Lease. These types of cases tend to be decided by considering case law, and the meaning of words in the relevant legal context.
For a list of solicitors in your area, and tips on choosing the right law firm for you, see our Leasehold Lawyers Directory.
Hearings normally last no longer than day, with a written decision generally sent out to the parties within 4 to 8 weeks of the hearing date. The Tribunal will state a clear outcome to the issue in question and make orders, for adjustments to be made to charges and other matters, which the parties to the case are legally obliged to follow.
Following the decision (known as a ‘Determination’) either party can apply to the County Court for enforcement action if the recommendations of the Tribunal have not been followed, or they can Apply to appeal the decision. If an Appeal is allowed, the case will be re-heard by the First Tier Tribunal or Upper Tribunal of the Lands Chamber. The Upper Tribunal is a more senior legal body than the First Tier Tribunal.
Ways for a Leaseholder to Resolve Problems with a Lease
Leases can, in certain circumstances, be amended. The length of a lease can be increased through a Lease Extension and the wording can be altered by Varying the Terms of the Lease.
In many cases, Leaseholders have the right under Section 39 of the Leasehold Reform, Housing and Urban Development Act 1993 to purchase a lease extension of an additional 90 years on the same terms as the existing Lease, except that any Ground Rent payable is reduced to a ‘peppercorn rent’ (which means no rent is payable on the land).
If a Leaseholder wishes to exercise this right the first step is to issue a Section 42 Notice to the Landlord. Preparing this Notice can be complicated and Leaseholders are advised to seek the assistance of a Valuer to work out the ‘premium’ (what the Lease Extension should cost) and a Solicitor to draft the Notice and follow the correct process for issuing the Notice. If the Notice does not contain the right information and is not issued correctly, a Landlord is entitled to refuse to grant a lease extension.
Determining the ‘premium’ can be complicated, and it depends on a number of factors including how long the lease has left to run. Leases with less than 80 years left to run are more expensive to extend.
The Section 42 Notice served by the Leaseholder must include a date by which the Landlord must respond to the Notice. The Law says that Landlords must be given no less than 2 months in which to reply by issuing a Counter-Notice. The Landlord has three options when they issue the Counter-Notice:
1. They can agree to the lease extension and accept the amount offerred, or suggest a different price.
2. Deny the Leaseholder the right to a extension, and give reasons why.
3. If the Lease has less than 5 years left to run, the Landlord can claim the Right of Redevelopment and deny the Leaseholder the right to an extension on this basis.
The Law says that after the Landlord has issued their Counter-Notice, there must be a period of 2 to 6 months to allow for negotiation between Leaseholder and Landlord. At any time after the first 2 months of the negotiation period (upto end of the 6 month period following the issuing of the Counter Notice) either Leaseholder or Landlord may apply to the First Tier Tribunal to decide whether the Leaseholder has a legal right to a lease extension, and if so the terms upon which it should be granted.
Varying the Terms of a Lease
The wording of a Lease can be changed by agreement between Leaseholder and Landlord. If both parties are willing to sign, they can make a Deed of Variation which varies (this mean changes) the Terms of the Lease.
If Landlord and Leaseholder cannot agree to a change in the Terms of the Lease, then either Landlord or Leasehold can apply to the First Tier Tribunal under Section 35 of the Landlord and Tenant Act 1987 for an Order varying the Terms of the Lease.
Section 35 states that an Application may only be made if the Lease fails to make “satisfactory provision” for any of the following:
1. Repair or maintenance of the flat, building or estate
2. Insurance cover
3. Repair or maintenance of installations serving the property
4. Provision of services
5. Recovery of expenditure by either Landlord or Leaseholder
6. Computation of the Service charge
Leaseholders also have the the right under Section 37 of the Landlord and Tenant Act 1987 to apply as a group to vary all the leases in their building or development. The application does not need to be made on the grounds set out in Section 35, but the applicants must make a clear case that the leases need to be amended in order to achieve a clearly identified purpose. Tribunals can, and do, refuse to change the terms of leases unless they are convinced that there is a clear purpose for doing so even if a majority of the Leaseholders and the Landlord have agreed on the changes.
In order to make an Application under Section 37 of the Landlord and Tenant Act 1985, the group of Leaseholders has to make up a minimum proportion of all the affected Leaseholders:
- If there are less than 8 Leaseholders then 100% of the Leaseholders must support the Application.
- If there are 9 or more Leaseholders, then 75% of the Leaseholders must support the Application and no more than 10% oppose it.
Ways for a Leaseholder to Resolve Problems with the Management of the Building
In certain circumstances, the Law allows Leaseholders to either change who manages their building or development, or to take control of the management themselves. There are three routes available to Leaseholders to achieve this: 1. Apply to a Tribunal for them to appoint a manager of their choosing; 2. Exercise their Right to Manage which allows Leaseholders to take on responsibility for the management of the building or development; 3. Or purchase the freehold through a process called Collective Enfranchisement.
Applying to Appoint A Manager
Under Section 24 of the Landlord and Tenant Act 1987, Leaseholders may have the right to apply to a First Tier Tribunal for a new manager to be appointed to manage the provision of services and works at their building or development. This right is not available to Leaseholders of a Local Authority or other provider of social housing, such as a Housing Association.
Before a Leaseholder can apply to a First Tier Tribunal to appoint a manager, a Preliminary Notice must first be sent to (1) The Landlord and (2) Any other person or organisation with responsibilities to provide services, or has other relevant obligations to the Leaseholder. The notice must state:
- That the Leaseholder, or Leaseholders if they are applying jointly, intends to make an Application to the First Tier Tribunal to appoint a manager.
- State the grounds (this means ‘reasons’) upon which the Leaseholder will apply for the appointment of a manager.
- Give a reasonable period of time for the existing Landlord or Manager to correct the problems which form the basis of the Leaseholder’s application.
A First Tier Tribunal is only permitted to accept an application to appoint a manager once the period stated in the Preliminary Notice has expired.
Section 24 of the Landlord and Tenant Act 1987 states three possible grounds upon which a Tribunal may make an Order to appoint a manager:
1. There has been a breach of the obligations owed to the Leaseholder, or Leaseholders, under the terms of the Lease in relation to the management of the Building.
2. Unreasonable Service Charges or Administration Charges have been levied on the Leaseholders, or are being proposed.
3. The Landlord or Manager has failed to comply with any relevant part of a code of practice approved under Section 87 of the Leasehold Reform, Housing and Urban Development Act 1993.
The applicant is required to nominate a choice of manager for appointment by the First Tier Tribunal. However, the Tribunal has the power to choose to appoint anyone it sees fit as the manager (not necessary the Leaseholders’ preferred candidate). The Tribunal also has the power to determine the length of the appointment, what the new manager is responsible for, and what they may charge for. The new manager is answerable to the Tribunal rather than the Landlord or the Leaseholders.
Right to Manage
Part 2 of the Commonhold and Leasehold Reform Act 2002 gives Leaseholders acting together the right to demand that the management functions carried out by the Landlord are transferred to a special company set up by the Leaseholders. This is known as the ‘Right to Manage’.
This right applies only to flats, and in order to qualify Leaseholders but live within a building where:
- two-thirds of the flats are leased by ‘qualifying tenants’. In order to be a qualifying tenant the Lease must have been initially let for a period of over 21 years.
- less than 25% of the building must be used for non-residential purposes.
- the landlord is not a local authority.
Before the Right to Manage is exercised the Leaseholders must set up a Right to Manage Company (RTM Co). The Articles of Association for the company are prescribed by Law in The RTM Companies (Model Articles) (England) Regulations 2009.
In order to exercise the Right to Manage, membership of the RTM Co must equal at least 50% of the total number of flats in the building. And, before the RTM Co contacts the Landlord to request a transfer of management functions a formal notice must be sent out to all qualifying Leaseholders in the building inviting them to join the RTM Co. The format and wording of this notice, as well as the other notices involved in the process of exercising the Right to Manage, are also prescribed by Law in The Right to Manage (Prescribed Particulars and Forms) (England) Regulations 2010.
14 days after the invite to join the RTM Co is sent out to all qualifying Leaseholders, a Notice of Claim may be served on the Landlord. The Notice of Claim does not need to include any statement of the reasons why the Leaseholders want to exercise the Right to Manage, or prove that the Landlord is have been in anyway at fault in the way the building has been managed.
From the date upon which the Notice of Claim is served on the Landlord, they have a one month period in which to issue a Counter Notice. The Landlord has two options at the Counter Notice stage:
- Agree to transfer management functions to the RTM Co
- State reasons why theLeaseholders do not have the Right to Manage
If the Landlord agrees then management functions are transferred to the RTM Co on the date which the Leaseholders have decided to enter on their Notice of Claim. This date must be at least 4 months after the date the Notice of Claim was served on the Landlord.
If the Landlord disagrees then the Leaseholders have two months from the date of the Counter Notice in which to apply to a First Tier Tribunal for a decision on their eligibility to exercise the Right to Manage.
Exercising the Right to Manage is a complex process for Leaseholders and they are likely to need professional help and to raise substantial funds from the Leaseholders willing to participate. The first problem is that the process to acquire the Right to Manage is complicated; Landlords can (and often do) dispute the Leaseholder’s entitlement to the Right to Manage on the basis that the process has not been followed correctly. The second issue is that the management of a building itself can be very complex. The RTM Co must comply with a range of regulations governing Service Charges, Health and Safety, Employment law and numerous other matters, in addition to managing the provision of services and maintaining the building. For larger buildings and developments it is normal for an RTM Co to employ the services of a professional managing agent.
Chapter 1 of the Leasehold Reform, Housing and Urban Development Act 1993 gives Leaseholders the right, acting together, to purchase the freehold of the building where they lease a property (this is known as ‘collective enfranchisement’).
In order for Leaseholders to be eligible, the ‘premises’ (this means the property for which the freehold is to be purchased) must:
1. Be a self-contained building or part of a building.
2. Contains two or more flat held by ‘qualifying tenants’ (a qualifying tenant is someone who holds a lease of 21 years or longer).
3. Have no less than two-thirds of the total number of flats held by qualifying tenants.
The right to collective enfranchisement does not apply to certain properties including:
- Those where the Landlord is a charitable trust.
- Buildings where more than 25% of the total floor area is used for non-residential purposes such as shops, office or educational facilities.
Leaseholders cannot exercise the right to Collective Enfranchisement individually. The number of participating Leaseholders must be equal to at least half the total number of flats in the building. Once there is the minimum number of participating Leaseholders involved, there is no requirement for the particpating Leaseholders to invite other non-participating Leaseholder to join in with the pruchase of the Freehold.
The first step in the process of purchasing the Freehold through Collective Enfranchisement is for the participating Leaseholders to serve an Initial Notice. This Initial Notice is a complicated document which must contain the right information. It is normal for Leaseholder to hire two or more professional advisers to assist in the process of preparing the Initial Notice:
- Surveyor: To advise on the price which should be paid for the Freehold title, and to advise on the future running costs of the building.
- Solicitor: To prepare the notice, and start up a Right to Collective Enfranchisement (RTE) company.
As part of the Initial Notice a purchaser must be nominated. This could be a person or a trust, or a company. Typically, the nominated purchaser is an RTE company, which is a company set up and owned by the Leaseholders participating in the proposed purchase of the Freehold.
As soon as the Initial Notice is served on the Freeholder the process starts and the participating Leaseholders become liable for the Freeholders costs, even if the purchase is never completed. On receipt of the Initial Notice the Freeholder must serve a Counter Notice within the time limit stated on the Initial Notice, which must be at least 2 months.
The Freeholder has three options in what reply to make in their Counter Notice:
1. Accept the claim, and either agree to the offer price in the Initial Notice or suggest a different price.
2. Deny the claim, and state reasons why.
3. State that they will be applying for a Court Order that the right to collective Enfranchisement does not apply on the grounds that the Freeholder intends to redevelop the property.
In the event that an agreement cannot be reached between Freeholder and Leaseholders within 2 months of the date of the Counter Notice, either side may apply to the First Tier Tribunal for a decision on whether the right to Collective Enfranchisement applies and the terms of purchase.
If the Landlord does not issue a Counter Notice, then at any point in the 6 month period after the date when the Counter Notice became due the Leaseholders may apply for a Court Order for sale of the Freehold property at the price indicated in the Initial Notice.