What is collective enfranchisement?
Together, flat owners can effectively ‘force’ a freeholder to sell their freehold to them. This right may be exercised whether or not the freeholder intends to sell, but the right must be exercised collectively by at least 50% of the flat owners.
This is known as Collective Enfranchisement.
What’s the difference between collective enfranchisement and the right of first refusal?
With enfranchisement, the sale can be forced on the freeholder; whereas with the Right of First Refusal the freeholder must first want to sell.
A freeholder can recover its reasonable professional fees incurred in the enfranchisement transaction from the flat owners.
Read about the Right of First Refusal here.
Do I qualify for Collective Enfranchisement?
Collective enfranchisement only works if at least 50% of the flat owners join together to force the sale.
To qualify the following criteria must be satisfied:
- The building must consist of at least two flats
- Those flats must make up at least 75% of the building
- At least 75% of the flat owners must be ‘qualifying tenants’ (i.e. lease of at least 21 years length)
- No more than 25% of the building can be non-residential.
How does collective enfranchisement work?
Once you have checked that your building qualifies for Collective Enfranchisement, you will need to get specialist valuation advice to find out how much the freehold is worth, and what lower figure you should offer to the freeholder, to allow for negotiation.
It is wise for the participating flat owners to enter an agreement between themselves, known as a Participation Agreement. This is a legal, binding agreement between the flat owners that will govern the relationship between them during the process of the freehold purchase.