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Enfranchisement: Safety in Numbers?
The Leasehold Reform, Housing & Urban Development Act 1993 (“the 1993 Act”) allows Flat Owners to collectively purchase the freehold of their block. In order to be able to proceed at least 50% of the Flat Owners in the building must participate in the process, so if there are 10 flats then at least 5 of them must join in.
Where possible we would always encourage as many Flat Owners as possible to participate in the enfranchisement process beyond the minimum required under statute.
The 1993 Act does not contain a condition requiring all Flat Owners to be invited to join the process, and so in practice ‘difficult’ or ‘troublesome’ leaseholders could be left out of the process altogether. There are the obvious benefits of inviting everyone to join in; not least sharing the costs between more people, but there is no right for a leaseholder to be included in the collective enfranchisement claim and no course of action available to them if they are left out.
Enfranchisement is also not a “once and for all” process as the 1993 Act does not prevent re-enfranchisement of a building or block that has previously been the subject of an enfranchisement claim by qualifying tenants. So, in the above example with a block of 10 flats where only 5 join in initially, the 5 non-participants would be free to serve their own enfranchisement Notice on the new owner (usually a company made up of the participating leaseholders) and acquire the freehold. On completion of their acquisition the 5 who have just lost the freehold could serve a fresh Notice on the new owners and acquire it back. This could continue indefinitely creating a “ping-pong” effect as ownership of the freehold continues to travel back and forth between the two competing groups of leaseholders.
It is for this reason that we would always suggest obtaining support from as many leaseholders as possible at the outset of the enfranchisement process; to minimise the risk of a ‘ping-pong freehold’ in the future.
Enfranchisement may end any disputes with the out-going Freeholder/Landlord but it can often open up a whole new range of disputes and grievances that were not there before and the difficulty is that there is no longer the third-party freeholder who lacks a real identity, any dispute(s) will now be with your neighbour. Such disputes can often trigger a group of Flat Owners to look to acquire the freehold and this may give rise to a whole range of new problems.
Encouraging majority participation should minimise any risks in the future, not to mention reduce the costs burden of enfranchisement.