Cons: Tenants should be aware that taking over the management of a large block can be onerous. Even though the day-to-day management matters can be contracted out to a firm of managing agents, as freeholders, the tenants will be responsible for insurance, repairs, redecoration and such thorny issues. Pursuing neighbours for arrears of service charges or dealing with complaints about unauthorised alterations or noise nuisance is not an easy task. The cost of the freehold could also be high if there are a number of short leases and few participating tenants or if there are expensive commercial premises to be included in the claim.

The collective claim

Acquiring the freehold of a building as a group of tenants is a complex project that requires much organisation and should not be entered into lightly. It is important to form a coherent group headed up by a few enthusiastic residents who can build consensus amongst the participants, and sustain momentum over a long period of time. Once this group has been formed, it is strongly advisable to instruct a solicitor to implement the technical procedure required and also a surveyor who can advise on the likely freehold value. These professionals will wish to deal only with the residents appointed representatives, who can in turn maintain a line of communication with their fellow residents.
The process is started by the service of a Notice of Claim on the landlord that sets out the premium offered for the freehold. The landlord then has to respond within two months with a counter-proposal. If the premium or the terms of the transfer cannot be agreed the parties have a specific time period within which they can apply to the Leasehold Valuation Tribunal who will determine the premium and any other terms that remain in dispute.

Pro and cons of lease extension

Pros: As an alternative to a collective claim, tenants also have the right to demand that their freeholder sell them a 90 year lease extension at a fair market price in accordance with statutory guidelines. Although buying a lease extension does not deliver to the tenant ownership and control of the building it is a much simpler process than enfranchisement, as it is an individual right, and thus often quicker and simpler for a tenant to pursue. The tenant will not have to cooperate with neighbours and can protect a diminishing lease without taking on the obligation of managing the building. The financial cost of buying a 90 year lease extension within the 1993 Act is usually similar to the cost of the tenant’s share of the freehold of the building although this is not always the case.
Cons: A tenant may find however that they pay slightly more in legal and surveyor’s fees because a single lease extension cannot offer the economies of scale that a large collective claim can where there are numerous tenants sharing these costs.
 

The lease extension

Generally speaking a tenant will be a qualifying tenant and will be entitled to seek an extended lease if its original lease was granted for a term of more than 21 years and the tenant has owned the lease for two years. It is no longer necessary to reside in the flat in order to qualify. Again, it is strongly advisable to instruct a solicitor to implement the technical procedure required and also a surveyor who can advise on the likely premium payable for the new Lease. The process is started by the service of an initial Notice on the landlord proposing a premium and terms for the extended lease. The Landlord must respond with a counter-proposal within two months. If the premium or the terms cannot be agreed there is a further statutory time limit for both parties to apply to the Leasehold Valuation Tribunal who will determine the premium and any terms that remain in dispute.

Conclusion

Tenants who are faced with the question of whether to enfranchise or whether to seek a lease extension need to consider what their main objectives are. If they are suffering from bad management, unsubstantiated service charges and their leases are significantly longer than the statutory limit of 80 years then a collective claim will be of most benefit provided that they have an organised residents association. On the other hand, if the leases are short or are about to reach the 80 year limit and they reside in a well managed block with numerous non-resident tenants a lease extension may well be the better solution. In addition, with a collective claim, time can be an issue. If there are a significant number of tenants, it can take some weeks or even months for them all to agree and sign up to the necessary documentation and to pay towards an established fighting fund. In contrast, a single lease extension claim can be implemented and signed within only a few days of a valuation being obtained.

It is also important to remember that the options are not mutually exclusive. It is possible for a tenant to apply for a lease extension one year and then enter into a collective claim a few years later. The tenant’s extended lease will only serve to reduce the premium payable for the freehold. Finally, tenants should also be aware that if the cost of the freehold is a problem it is possible to opt for the Right to Manage as a low cost solution to gaining control over the way that a building is run.