Legislation

Statutory right for tenants upon qualification under the 1993 Leasehold Reform Housing and Urban Development Act, as amended by the 2002 Commonhold and Leasehold Reform Act (1993 Act) to join together to acquire the freehold of their building from the landlord by serving a notice under Section 13 of the 1993 Act.

Qualification

Tenants

  • The tenant must have a long lease which was originally granted for a term in excess of 21 years. There are other types of long-lease but this is the main one.
  • Shared ownership lease will not count unless stair-cased up to 100%
  • A tenant will not qualify if they own more than two flats in the building

Building

  • The building must be self-contained or a self-contained part of a building, in which case there must be a vertical division from the remainder of the building and independent services are provided to that part or can be provided without significant interruption.
  • The building must contain a minimum of two flats and at least two thirds of the flats must be owned by a qualifying tenant
  • A minimum of half the flats in the building must participate in the acquisition and all those must be owned by qualifying tenants. However, where there are only two flats in the building both must participate
  • No more than 25% of the whole of the internal floor area, excluding common parts can be used for non-residential purposes (shops, offices etc)

Exceptions

The tenants do not have the right to acquire the freehold in the following circumstances:

  • the building has been converted into four or fewer flats; and
  • it is not a purpose built block; and
  • the current freeholder owned the building before the conversation; and
  • that same freeholder, or an adult member of their family, has lived in the building for the past 12 months

or:

  • the building is within a cathedral precinct
  • the building is a National Trust property
  • some Crown properties (judged on a case by case basis)
  • operational railways are included in the freehold

Property to include in the Section 13 notice

  • The freehold building containing the flats
  • Other premises belonging to or used by the flats, e.g. garden, garages, walkways etc.

Process

  • Obtain valuation advice to assist in a figure to insert in the Section 13 notice. It is advisable to instruct a valuer to inspect the property and prepare a report.
  • Participating tenants (usually) form a company to buy the freehold
  • Serve the notice, giving the landlord at least two months’ to respond with a counter notice. Specify the date for response.
  • If landlord denies the right, the tenants must seek a declaration from the County Court as to their right
  • Usually landlord’s counter notice will accept the right but counter the premium offered if so parties negotiate for two months. If agreement on the terms cannot be reached parties have a further four months window to apply to the first-tier tribunal to determine terms which cannot be agreed. Parties can still negotiate during this window and withdraw from the tribunal process if agreement is reached.
  • Once parties agree terms or the tribunal makes a decision (and the right to appeal it has surpassed) on those terms the new the lease must be completed within two months from this date. If not the parties have a further two month window to complete or to apply to the County Court to enforce completion.

Costs

The participating tenants are liable to pay the landlord’s reasonable legal and surveyor costs in relation to the lease extension. Although, each party bears their own valuer negotiation fees and any fees incurred in connection with the tribunal. The participating tenants are able to make an application to the tribunal to have these costs determined if they are thought to be unreasonable. The key test is, would the landlord have incurred the same costs had they been personally liable?

Note: this is purely a guide which outlines the basics. You are advised to obtain proper legal and other professional advice before proceeding.