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Key Questions and Answers from the Enfranchisement Forum held on  25th May 2010

 

1)  I have been receiving letters from my landlord stating that I am not authorised to sub-let my property.  I am charged £85.00 plus VAT each time a letter is sent.  I have asked my solicitor for advice and I have been advised to throw the letters away because they are "rubbish".  What should I do when I receive such correspondence and am I entitled to sub-let my property?

The lease will set out if whether or not you are entitled to sub-let the property.  Where you have sought advice from your solicitor, I have assumed that the solicitor has checked the terms of your lease and from the advice given, that you are entitled to sub-let.  I also suggest you consider your lease to check what the provisions are, if any, on sub-letting your property. 

 

2)  I own a flat in a block of two flats.  Both flats are subject to long leases and I understand that both owners subject to meeting criteria are required to participate in an enfranchisement action.  Will the "50%" ever apply to two flats, so that I may enfranchise myself?

It is not envisaged that the legislation shall change.  I suggest that you ask your neighbour to participate in the action and agree to indemnify the other leaseholder for all costs and any liability in return for the freehold being transferred into your sole name.  (The problem, it transpires, is that the other leaseholder is the landlord and will never agree to such a thing). 

I suggest that perhaps you apply to LVT for the appointment of a manager under the Landlord & Tenant Act 1987, which is a draconian measure and not within the remit of seminar but something that can be discussed in more detail after the seminar. 

Another suggestion is to negotiate and agree with the landlord to give you first refusal and sell the freehold to you when he sells his flat.  A formal agreement can be entered into and registered against the freehold title.  (The landlord being resident would mean that he is not able to offer to you first refusal under the Landlord & Tenant Act 1987). 

 

3)  What would be the liabilities of and obligations of a third party investor to whom a head lease is granted over a non-participant tenant's flat?

The nature of the document is subject to negotiation between the parties.  For example, if the third party investor is making a reasonable offer or one that is perhaps higher than most would be willing to accept or pay, then the third party investor would not expect the paperwork to be onerous or be troubled with any involvement in the management of the block or payments towards the freeholder because he would ask the freeholder to make any financial related demands directly on the occupying tenant. 

Some paperwork that I have been involved with has meant that the head landlord has assumed exactly the same responsibilities as the tenant of the underlease.  Other paperwork has been prepared to the other extreme where the head landlord is only interested in collecting ground rent and nothing more and is not liable to pay anything more; where all sums are demanded of and payable by the occupying tenant.

 

4)  Can we learn a little more about third party investors where the participants cannot fund the non-participant's shares?

There are well known landlords and property investors turning their attention to such investment opportunities.  A surveyor representing the participants can put together a package to grant a head lease of each non-participant's flat.  The third party investor would consider how much could be achieved from each lease being extended and offer on that basis.

 

5)  I am involved with a block of flats in which there were 6 flats and 4 are on board to enfranchise.  The other two leaseholders sub-let their flats.  Would the leaseholders be able to progress an enfranchisement action?

On the numbers involved and subject to making criteria, you can progress the action without the need to ask the other leaseholders.  In your case the minimum number of 3 participants would be required at the time the enfranchisement notice is served.  Thereafter, you do not need to maintain that minimum throughout the action. 

Following on from the above question, can you explain further the scenario of Ping Pong? 

Ping Pong is a scenario where, for example, you have a building containing 4 flats on long leases and 2 participants enfranchisement, it is possible that once the enfranchisement action has been completed, the other two who did not participate in the action can "re-enfranchise" the freehold back from their neighbours. 

 

6)  What can be done to perhaps annoy the leaseholders who have enfranchised?

I suggest that the two non-participants progress an action for right to manage thereby removing most of the management functions under the terms of the leases from the new landlord.  Please bear in mind that the landlord would be entitled to membership of the company and that not all decision making is delegated to the right to manage company and the landlord is entitled to be informed of certain issues, as well.

 

7)  Can a person that owns a shared ownership lease participate in an action to enfranchise or extend their lease?

Generally you need to own 100% of their shared ownership lease before you can have rights under the enfranchisement legislation. 

 

8)  What building cannot be enfranchised?

Generally most buildings will qualify.  Here are a few examples of those that would not:

Buildings that have a non-residential use which exceeds 25% of the total internal floor area of the building (excluding any common parts); the physical stature of the building and if for example, it is not self-contained or vertically divisible from the adjoining premises.  Some buildings owned by the Crown State and which are "excepted areas" and have been designated as historical or of archaeological importance and therefore precludes the leaseholders from enfranchising the same and so on.

 

9)  How far off would the premium have to be to invalidate the Initial Notice? 

There is some case law on the subject.  You can make a bona fide albeit an aggressive offer but the price you refer to in an Initial Notice has to be ridiculous/obviously wrong for a landlord to be able to pursue the argument that the Initial Notice is invalid for failing to refer to a price that has been calculated in accordance of the Act.  If the landlord fails to serve a Counter-Notice then the leaseholders could go to Court for an Order that  the freehold or the lease to be granted on the terms set out in the Initial Notice.  However, the Court would have to be satisfied that the Notice was valid, which would include appraising the sum offered is one calculated in accordance with the legislation. 

Another point to note is that no equivalent obligation upon a landlord to refer to a reasonable or a sum calculated in accordance with the legislation in the Counter-Notice.

 

10)  Price of the Freehold - 3 years on?

3 years ago the landlord offered to sell the freehold interest for £100,000 but the leaseholders did not accept the offer.  How much would the freehold be worth now?  (The leases have more than 80 years left to run).  With the elapse of time and subject to looking at the paperwork, the sum calculated could very roughly be a further £60,000.00.  i.e. total £160,000.00

Can you rely upon sales at auction as market evidence? 

I gave the example where a client had recently bought a freehold interest for £30,000.00 at auction; the leaseholders had failed to protect their right of first refusal and eventually enfranchised a few months later at the price of £80,000.00.  Auction evidence is not entirely reliable.

 

11)  I and my fellow leaseholders have bought the freehold of our block.  However, having bought the freehold nothing further has occurred.  For example, we need guidance about what to do if a  non-participant wishes to buy a share and how much should be charged; whether we can extend our leases, what becomes of the leases and if whether they should continue to charge ourselves service charges and if whether accounts should be submitted?

 

The freehold interest has been bought subject to the leases already in place.  Therefore, if you want to know what your obligations are as a landlord, then you should familiarise yourself with the landlord's obligation in the lease in addition to the various legislation that a landlord is also obliged to meet.  The leaseholders having bought the freehold interest may not necessarily best equipped to manage the freehold interest and should consider employing managing agents subject to the company's constitution, you can pass a resolution to. 

 

12)  If you have a dormant company do you still need to file the necessary corporation tax forms with HMRC?

Simon Speller of Hillier Hopkins LLP very kindly advised that they would need to still file the corporation tax form but that they should indicate that the company is dormant.  SS did advise that they needed to check the company was still dormant or whether they had received any service charges or any other form of money. 

 

Colman Coyle have for over ten years operated a specialist Enfranchisement department dealing not only with acquiring the freehold of a property, but also extending your lease, Right to Manage and offers of first refusal.

For more information on the above or for advice on any other enfranchisement issues please contact Hema Anand on 020 7354 3000

Date: June 2010