When leaseholders join together to purchase the freehold of their property, this can either be done through a voluntary process of negotiating with the current owners or under a statutory route. The former is subject to whatever terms (and for whatever price) the freeholder may seek whereas under the statutory route, you can seek this done under a set procedure for a fair market price. For most parties considering this a large point of consideration is how much the process will cost them. Unfortunately, that can just be one of a series of issues they may need to address.
What Collective Enfranchisement Vehicle to use
Whenever more than one person owns property in England and Wales, there will be a trust of land. For leaseholders seeking to purchase their freehold, this can either be done in their individual names or they can form a freehold ownership company. If individual names are used, this can be done by up to four people and usually subject to an instrument of trust for any further. This can create a quagmire of issues though, as any time a leaseholder would seek to sell, it would require multiple parties to sign a transfer deed and potentially result in the amendment of the trust document.
When a freehold ownership company is instead utilised, this allows for the different shareholders (usually the owners of the leasehold interests) to merely transfer their shares on any sale of their property. These companies can be set-up and usually benefit from some bespoke articles (rather than adopting standard articles of association) to make it clear what each shareholder can expect in terms of the purpose of the company, what happens on any sale of leasehold interest and to ensure that ownership of property in the premises is a requirement for standing as either a director or shareholder.
These collective enfranchisement companies are often dormant companies but the obligations on the directors (those responsible for the day-to-day running of the company) still are formally appointed individuals who have obligations to both the company, HMRC and the wider-public. This includes reporting obligations (such as filing accounts), keeping a record of meetings and formally proposing any resolutions for the management of the company. There has been a growing number of cases where directors of freehold ownership companies default on these obligations and put the freehold the company owns at risk – so is no small matter to take on.
Disappearing Freehold Owners
In some instances, where a trust of land is in operation and another party’s consent to dispose of their share of the freehold is required, co-freeholders can disappear or otherwise not respond to requests for their consent. In these such instances, it would fall on the person seeking to sell their share to make an application to Court to show that the trust between the co-freeholders had come to an end and that a transfer of the outgoing lessee’s share should be allowed. Ordinarily under this procedure you would have to show you made reasonable attempts to contact the co-owner or gave them ample opportunity to provide their consent but their response had been unreasonable. You would then need to seek an order from the Court authorising your legal advisor to execute the transfer on the behalf of the co-owner if they fail to execute for any future sale. This route, while can be time consuming and costly, can assist future sales where one buyer may have already been deterred from the delay of receiving the freeholder’s consent.
What is the best way for me?
Properties are often the largest financial investment individuals will make and with that comes a large amount of stress and frustration. When you seek to own part of your freehold as well this comes with added risk and responsibility as you seek to cooperate with other owners. The process of starting your own freehold ownership company can take some time to finalise and can lead to tension when those involved are not approaching the situation from a common financial and commitment position. Similarly, when you would seek to sell your interest in a leasehold property with part freehold ownership, it can bring out tension when co-owners do not respond as would reasonably be expected of them.
If you would like to discuss your potential options as to either collectively enfranchising or options that are available to you to force a co-owner to cooperate in a sale, please get in touch with a member of our team with a property litigation query and we would be happy to suggest some initial options that may be worthwhile to explore for your situation.