When looking to collectively enfranchise the freehold, leaseholders will naturally want to know how much it is going to cost.
The amount payable is usually made up of:
The premium payable to the freeholder
leaseholders legal costs
leaseholder valuation costs
freeholders solicitors costs
freeholders valuers costs
any arrears of service charge
any arrears of ground rent
The biggest element of this is likely to be the premium payable to the freeholder and whist there is no collective enfranchisement calculator strictly speaking, there is a work around that we set out below.
Collective enfranchisement is unusual in that as the law currently stands, the participating group must pay the freehold value of any non-participating flats, and this is an acute problem if the non-participating flat has a short lease term.
Collective enfranchisement calculator
Firstly, there is simply no substitute for having a valuation carried out, and for that we recommend using an experienced leasehold valuer. However that involves an initial outlay and based Peppercorn Law's experience in this sector, many want to have a ball park figure for the freehold before incurring hundreds in legal and valuation fees.
To calculate the likely premium payable to enfranchise the freehold, the leaseholders will need to go to this lease extension calculator page and complete the lease details for each flat within the building (including non-participating flats).
Add the lease extension premiums together, and this will give you a very rough idea of the likely freehold purchase price for the block of flats.
How do I find out the lease length and ground rent details?
Anyone can obtain copies of registered flat leases held at the Land Registry by going here and ordering them. Alternatively, your leasehold solicitor can download them instantly from the Land Registry using their business account access. Regardless of how this is done, the Land Registry charges a fee of £7 for a copy lease (and note that you might need any subsequent deeds of variation, as these may have changed the ground rent and lease term).
What are the some of the issues with collective enfranchisement?
The biggest issue that leaseholders run into is whether there are substantial arrears of service charge. Simply put, the Leasehold Reform Act requires any arrears to be paid on completion, even if these are in dispute.
It is possible to make an FTT application to have the reasonableness of the service charge determined before completing, but this adds complexity to the process and slows things down dramatically. It is best practice to resolve service charge issues in advance or simply draw a line under things to get on and complete the freehold purchase and start with a clean slate.
The problem is compounded there are substantial arrears relating to a non-participating flat. As the group will essentially need to 'buy' those arrears and then try to recover them after the enfranchisement completes; not something many are willing to do. In this case we recommend that the group contacts the leaseholder in question and makes clear that they can facilitate the transition to a leaseholder owned and managed building, by paying up or making an FTT application to have the service charges determined ASAP.
Development value
Something we are increasingly seeing in Brighton and London, whereby the freeholder (often who has never shown any real development intent) tries to claim money for 'development value' of the loft space. If this happens, we suggest having an experienced valuer on board who can put the freeholder to proof on this.
If there have been no plans or applications made, it is likely to be worth proceeding to the FTT to have the premium for the freehold determined, as the FTT can strike out any sums demanded for development value or roof space leases and the like.
Freeholder costs
It is an unfortunate fact that as the law stands (and we are expecting leasehold reforms to change this over the next few years), the freeholder is entitled to recover its reasonable legal and valuation costs from the leaseholders.
The amount of freeholders costs will vary depending on the size of the block of flats, but we regularly see freeholders solicitors costs of between £2,000 to £3,500 plus VAT for blocks of up to 15 flats.
Valuation costs of the freeholder should be similar to the groups own, and if marriage value is payable or if the leases contain doubling ground rents, ground rents linked to RPI or any other ground rents considered onerous then these costs are going to be higher. For a block of up to 10 flats we'd suggest budgeting for costs of around £2,500 plus VAT in valuation fees.
Participation agreements
This is the contract between leaseholders, to provide some level of binding commitment that the group will proceed with the process even though it can take a good year or so in some cases. Importantly, the participation agreement will set out in black and white how the freehold premium will be split and how the costs of the process will be split between the leaseholder group.
The agreement should also set out that any participant is entitled to a 999 year share of freehold lease extension post completion.
The participation agreement will also detail what happens if a leaseholder wants to sell their flat during the collective enfranchisement process, usually by allowing the purchaser to step into their shoes and continue with the process (it is in the interest of the group to have as many flat owners on board as possible, to share costs).
Finally, the agreement should make clear on what grounds a leaseholder can withdraw without incurring any liability to the others. We suggest setting a maximum price within the agreement, to ensure that leaseholders are agreeing to complete regardless of the eventual freehold purchase price. This should set by reference to the top figure that your leasehold valuation surveyor estimates as payable under the Leasehold Reform Act.
We suggest appointing an experienced leasehold solicitor as early as possible, collating the queries the group has and ensuring that your participation agreement for collective enfranchisement covers off any specific concerns before the group serves the section 13 claim notice to enfranchise the freehold.
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