Collective Enfranchisement: Buying the Freehold of Your Block

Collective enfranchisement is the leaseholder equivalent of "going freehold" — once complete, your block is owned by the leaseholders together (typically through a company). The advantages over Right to Manage and lease extension combined:

• Ground rent disappears — the freeholder is now you (collectively), so ground rent is no longer paid out.
• Lease extension on demand — once you own the freehold, you can grant yourselves 999-year peppercorn leases for no further premium.
• Full management control — like RTM, but with the added benefit of full ownership.
• Future-proofing — no risk of an aggressive new freeholder buying the building from the current one.
• Removes mortgage difficulties — flats in leaseholder-owned blocks are easier to sell and mortgage.

The disadvantage: cost. Premiums for enfranchisement of a 10-flat London block can be £200,000-£600,000+. For a 6-flat regional block with longer leases, £30,000-£80,000. Plus legal, valuation, and Stamp Duty Land Tax (the company pays SDLT on the freehold purchase, currently at non-residential rates).

Under LRHUDA 1993, the block must:

• Contain at least 2 flats (smaller buildings may struggle commercially even if technically eligible).
• Have at least two-thirds of the flats held on long leases (originally granted for 21+ years).
• Have no more than 25% non-residential floor space. The 2024 Act raises this to 50% once commenced, opening enfranchisement to many mixed-use blocks.
• Not have a "resident landlord" exception (in converted houses where the freeholder lives in part).

At least half the qualifying tenants must participate. A "nominee purchaser" — a company set up for the purpose, owned by participating leaseholders — buys the freehold on their behalf. Each participant's share of the purchase is typically determined by their lease's contribution to the value of the freehold.

The process:

1. Initial meeting with all leaseholders to gauge interest, agree to share legal and valuation costs, and select a nominee purchaser company structure.
2. Set up the nominee purchaser — a limited company at Companies House, with participating leaseholders as members.
3. Commission a chartered surveyor valuation for the premium estimate (£1,000-£3,000 for a typical block).
4. Serve the Initial Notice (Section 13 LRHUDA) on the freeholder, claiming the right and offering a premium.
5. Freeholder's counter-notice within 2 months — accepting the right (usually) and proposing a counter-premium.
6. Negotiation for up to 6 months.
7. First-tier Tribunal (Property Chamber) if no agreement — fixes the premium.
8. Completion — freeholder transfers, nominee purchaser company becomes the new freeholder. Stamp Duty Land Tax paid by the company.

Total timeline: 9-18 months from initial notice to completion. Add 6-12 months if the freeholder is uncooperative or if missing freeholders need to be traced.

The premium under LRHUDA 1993 has three components (with a possible fourth):

• Value of the freeholder's existing interest — the present value of all future ground rents under the existing leases, plus the value of the eventual reversion when leases end.
• Marriage value (only if any lease has under 80 years remaining) — the increased value of the combined freehold-plus-leasehold interest once the leaseholders own both. Half goes to the freeholder. The 2024 Act abolishes marriage value once commenced.
• Hope value — a discount for the chance that the freeholder might have been able to extend leases on more favourable terms in future. Hope value is also being reformed.
• Reasonable freeholder's costs — legal and valuation fees the freeholder reasonably incurs. The 2024 Act caps these.

Premiums per flat range from £5,000 (long lease, low ground rent) to £100,000+ (short lease, doubling ground rent). The Tribunal will not order a premium below the freeholder's calculated minimum; the negotiation is over capitalisation rates, deferment rates, and disputed assumptions, not whether a premium is payable.

Once the nominee purchaser company owns the freehold, the leaseholders (as members of that company) collectively own the block. Practical changes:

• Ground rent — the company can wipe out ground rent on all participating leases by granting deeds of variation (no further cost to participants).
• Lease extension — the company can grant 999-year peppercorn leases to participants for the cost of legal fees only.
• Service charges and management — the company is now the landlord and collects all service charges. It can use a managing agent or self-manage.
• Non-participants — leaseholders who did not join the enfranchisement continue with their original lease terms. They pay ground rent to the new freeholder (the company) and benefit from the new management.
• Future sales — participating flats include a share in the freehold company; this typically commands a 5-10% price premium on the open market.

The block company is run like any other limited company — annual accounts, AGM, directors. Build in succession planning so that as flats change hands, the new owners become company members and contribute to the running.