The Top 5 Mistakes every Enfranchisement should Avoid!
Official UK Government statistics estimate that there are over 4 million residential leasehold properties in the UK.
Almost all of them qualify for the legal right to purchase their Freehold under the laws of Collective Enfranchisement. Many apartment owners are waking up the the numerous advantages of owning their freehold rather than just a lease. So why do many Collective Enfranchisement opportunities fail to get off the ground or simply fail after they do?
Here are the top 5 mistakes that we see most often and how to avoid them.
Mistake #1: Not understanding the benefits of owning your Freehold
- “We already have long leases”
- “We have the management rights”
- “Our flats won’t be worth any more if we own the Freehold”
Freehold ownership is very different from leasehold ownership in several ways and each acquisition is different from another. Apart from securing a 999 (perpetual) lease and annulling ever-increasing ground rent charges, there are many direct and indirect benefits of being masters of your own destiny. When you are not beholden to a freeholder, you can manage minor and major works in your own timescale, uplift the building in the manner you wish to and make savings on everything from contractors to insurance at reduced costs. The time saved engaging and sometimes disputing matters with a Freeholder will be better spent on your own personal life. Leaseholders who own a share of Freehold, find uplift in resell and rental values. In a nutshell, leaseholders who have banded together, work well together. It’s what many people call a ‘no-brainer’.
Mistake #2: Overestimating the hurdles
- “We will never recruit the required 50%”
- “It will cost too much and take too long”
All collective enfranchisement claims, large and small have similar initial challenges but the largest by far are false assumptions. Rather than assuming that the 50% threshold of qualifying tenants will not be achieved, accept that they will be grateful for the opportunity so actively recruit leaseholders with a goal to securing as close to 100% as possible. Rather than assuming that the cost will be too high or take too long, follow a process of estimating both before deciding to move forward at each stage. Take the right steps at the right time and you will avoid hurdles you did not even know about.
Mistake #3: Underestimating the cost or organisation required
- “It’s a process like extending my lease, there’s not much to do”
- “Our solicitor will organise everyone”
- “We have a cost estimate from our solicitor – we will keep within budget”
Oversimplifying the process is also a major reason why many collective enfranchisement claims stall or fail to complete. It is true that there are similarities between extending your lease and purchasing a share of freehold. Both are legal rights and both follow a statutory process. However the similarities end there because Collective Enfranchisement has more dimensions to consider. You are working with multiple signatories so are only as strong as the weakest link. You are purchasing an entire building including ground an airspace, perhaps with additional areas that are ripe for development. There are costs that you need to understand upfront (such as the Freeholder’s reasonable professional fees, SDLT and company formation, maintenance and accounting) that no one tells you about from the start. Solicitors will manage the legal process but will not manage the project. Organising your group in the right way will bring huge success; failing to manage the project from the outset will drive up costs and increase risks.
Mistake #4: Sidestepping a Participation Agreement
- “A Participation Agreement is only a nice thing to have and we can save time and money without one”
A Participation Agreement is a legal document that sets out the basis for leaseholders to work together to achieve their goals in a particular way. Good quality PAs require expert drafting and signing by each person or company that is a leaseholder for each flat. Therefore, it is quite true that some money and time can be saved by skipping this step. However, if and when there is a disagreement between any of your participants, the cost to address and rectify the problems would normally far outweigh the cost of the Participation Agreement. The best way to avoid disagreements is to prepare for them. A Participation Agreement is a vital tool.
Mistake #5: Instructing the cheapest solicitor or surveyor
- “Expensive solicitors and surveyors will just charge lots of money per hour”
When it comes to instructing professionals, getting the right fit for your building is important. A Freehold purchase is a significant investment and with greater rewards come greater risks. Selecting a highly-specialised and experienced solicitor and surveyor may be more expensive on a per-hour basis. However, if their expertise and know-how avoids even minor complications, they will have proved their worth many times over. Going slightly cheaper can often be far too expensive in the long run. Find the right fit.