8 August 2013 by

Driving Down the Cost of your Freehold – Your Options for Securing the Best Deal

When a landlord wants to sell the freehold it must first be offered to the tenants under their collective ‘Right of First Refusal’. Tenants are notified by way of a Section 5 notice. The alternative way to collectively acquire the freehold (at a time of the tenants’ choosing rather than waiting for the landlord to sell of their own accord) is by serving their own Section 13 notice, otherwise known as Collective Enfranchisement.

Right of First Refusal

When a Right of First Refusal notice is served on the tenants the landlord will usually have a price in mind. There is no specific formula as to how the freehold premium is calculated. The likelihood therefore is that it will be either the market value that a buyer is willing to pay (having a buyer lined up) or a figure that the freeholder decides on. The figure in the first refusal notice is a take it or leave it offer. The figure cannot be negotiated and must be accepted by the tenants or the freeholder will be able to sell to a third party although at a price that is not lower than in the first refusal notice.

Collective Enfranchisement

Where the tenants have got together to collectively force the landlord to sell them the freehold, there is a specific formula for determining the freehold price. This is calculated by a specialist valuer and will be negotiated between the representatives of the landlord and tenant.

So, which option is cheaper?

This will depend on the price the landlord offers the freehold on a first refusal basis. The figure may be inflated slightly if the landlord has a buyer in mind and does not want the tenants to purchase. However, to balance this, unless specified in the first refusal notice landlord’s costs will not be recoverable from the tenants unless there is a withdrawal by the tenants at a certain stage. In some cases, the landlord is not aware of the true freehold value and may offer it for a below market value premium. Under Collective Enfranchisement, the landlord’s reasonable legal and valuation fees will be recoverable. The balancing factor in a Collective Enfranchisement process is that the actual price can be negotiated.

A point to remember is that if the Section 5 first refusal offer is inflated, there is always the back-up option of serving a Section 13 Collective Enfranchisement notice as an alternative. This would be subject to the property being of the type which qualifies under both pieces of governing legislation.

Specialist advice should be sought on this subject especially if you have received a Section 5 first refusal offer notice as there is limited time for acceptance.

If you have any questions or would like more information please contact our specialist Lease Extension and Enfranchisement team, Darren Coleran or William Bethune.

25 July 2013 by

A Clean Break in time

Although it might sound like something from an episode of Doctor Who the recent case of Dale Vincent v Kathleen Julie Wyatt shows that it is now possible to achieve a clean break by the mere passage of time.

1 August 2013 by

“What’s in a name?” Update on the new Property Chamber

On 1 July 2013 the new First-tier Tribunal (Property Chamber) came into being in England amalgamating the old Leasehold Valuation Tribunals, Residential Property Tribunals, Rent Tribunals, Agricultural Land Tribunals, Rent Assessment Committees and the Adjudicator to HM Land Registry.

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