Collective purchase of the freehold
What does "collective purchase of the freehold" mean?
This is a right available where there are several flats in one building and the tenants (or some of them) decide to buy out the landlord by acquiring his interest in the building - ie the freehold. Generally speaking it is ownership of the freehold which gives control over things such as repairs, service charge and other management issues. Those tenants who participate will form a company which will buy the freehold from the landlord. Each of the tenants participating will be a member of the company and have a say in the decisions taken by the company.
Why should tenants want to purchase the freehold?
Where there are poor relations between the tenants and the landlord of a block of flats the tenants may decide that it would be beneficial for them to buy the freehold. This would give them control of the management of the block. When they come to sell the flat it is often seen as a selling point that the tenants are in control of the freehold. Estate agents will commonly refer to such a situation by saying that a purchaser will obtain "a share of the freehold". Not only will the participating tenants be in control of the service charges but they will also be in a position to grant themselves lease extensions for virtually nothing. Thus where a number of tenants have "short" leases they might find it more cost effective to collectively buy the freehold rather than each separately seeking a lease extension.
Do I/does my building qualify?
The building must not be more than 25% non-residential and at least two thirds of the flats must be let to qualifying tenants. Generally speaking qualifying tenants are those who have long leases (i.e. originally granted for more than 21 years).
If the building qualifies then in order to initiate a collective purchase at least half of the qualifying tenants must participate. Where there are only two flats both tenants must participate.
You should realise that this is a complex area of law and there are exceptions to the above general guidance. Please give us a call if you want to discuss your building in greater detail.
If you would like to discuss your case with us please call Ash Oberoi, Claire Allan or Leigh Shapiro on 020 7553 9000.